Anyone wanting a clearer picture of their finances in retirement should take advantage of the fact The Pension Service can forecast what you are entitled to.
This can be a very worthwhile exercise in view of the forthcoming changes in the world of state pensions.
Back in April, the Government outlined two potential options for state pension reform in order to simplify the current system and encourage more people to save for their retirement.
Pensions minister Steve Webb said at the time it would “secure a fair, decent and simple state pension fit for the 21st century”.
The first proposal was based on the current reforms in that the State Second Pension would move to a flat rate, but by 2020, rather than 2030.
The second proposal was that the whole State Pension structure would become flat rate at around £140 a week in today’s prices. This would end the contracting out option for defined benefits schemes; contracting out for defined contributions schemes is already ceasing from April 6, 2012.
Under the present system, Pension Credit is a means-tested benefit and depends on the level of savings or capital an individual or a couple have. Any savings or capital up to the first £10,000 are ignored as well as any income from these savings. Thereafter income of £1 is assumed for every £500, or part of £500, above the £10,000 threshold.
Pension Credit is made up of two parts – the Guarantee Credit and the Savings Credit. The Guarantee Credit could top your weekly income up to £137.35 a week for someone who is single or £209.70 if someone has a partner. The Savings Credit may be available if some savings have been made towards retirement and can provide up to an extra £20.52 (£27.09 for a couple) a week, even if the total money coming in is up to around £188 a week (£277 a week for a couple).
This is just a basic outline of the current rules. The age at which entitlement arises needs to be considered, as does any caring responsibilities, disabilities, certain housing costs and what actually counts towards calculating the assumed income.
As well as the Pension Credit, the basic and additional state pension components are dependent, in part, on the number of years of National Insurance contributions and level of earnings.
