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Tuesday, December 15, 1998 Published at 18:59 GMT


Business: Your Money

Pensions reform: how it affects you



The UK Government wants getting a pension to replace buying a house as the number one financial outlay for the UK's working population.


BBC Social Affairs Correspondent Niall Dickson assesses the new proposals
It may view its latest plans to achieve this as "radical" but it probably has a long way to go, with most of the population uninterested to say the least.

With a third of workers set to end up on income support when they retire if the current system remains, the issue is unlikely to go away.

So how will the latest changes affect you?

Low earners (below £9,000)

Most of the new proposals are aimed at keeping people in low paid employment from ending up in poverty in old age.


[ image: The sooner you start thinking about it, the better off you'll be]
The sooner you start thinking about it, the better off you'll be
From April 1999, a guaranteed minimum income will be introduced through Income Support.

It will mean at least £75 a week for single pensioners and £116.60 a week for couples.

Pensioners aged between 75 and 79 will receive £77.30 a week (single) or £119.85 a week (couples), whilst those over 80 will receive £82.25 a week (single) or £125.30 a week (couples).

Over the long term, the government aims to increase the rate in line with earnings.

The basic state pension will remain, but this will continue to increase in line with prices, which means it will continue to fall behind earnings. It is estimated that it will be worth only 7% of average earnings by 2040.

The government also plans to set up a second pension to supplement low earners' retirement income.

The current State Earnings Related Pension Scheme (Serps), which is effectively a second pension based on how much people earn and therefore contribute, will be replaced by a new State Second Pension.

Overall, the government wants to see people earning up to £9,000 a year get a boost to their second pension of some £50 a week (in today's terms), by contributing to the new State Second Pension.

Middle earners (£9-20,000)

People earning between £9-18,500 a year, (roughly average earnings), receive a more modest increase in their pensions, either through the new State Second Pension or increasingly through privately funded alternatives.

As an incentive to take out a State Second Pension, every worker in the country will receive an annual pension statement which will outline the bleak prospects ahead for anyone who does not provide properly for their retirement.

The scheme is intended to make sure that it is worthwhile for low and moderate earners to save for their old age.

To begin with, people will have the choice of remaining in the State Second Pension or joining a funded scheme.

However people already in good occupational schemes, funded or unfunded, would be expected to remain in them.

Carers

Carers could also be set to benefit.

The government plans to consult on entitlement conditions, but its initial proposals are that carers will receive credits if they are:

  • Recipients of Invalid Care Allowance

  • Carers of people receiving Attendance Allowance or Disability Living Allowance, who qualify for Home Responsibilities Protection

  • Those receiving child benefit if the youngest child is five or under

This is provided that they have insufficient earnings to cross the annual National Insurance Lower Earnings Limit (currently £3,300 a year).

Self employed

The government has rejected suggestions that it should make a second pension compulsory for the self employed.

At present, they cannot join Serps, but the government plans to look into allowing them to join the new State Second Pension.

There will be no move to bring in compulsory second pensions until the stakeholder system has been established.



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