The state pension is fiendishly complicated, but for one blissful moment a year or two back, I thought that was going to change.
The coalition’s decision to launch a flat-rate basic state pension, which kicks in from April 2016, initially appeared to bring clarity where there was only confusion.
The new single-tier pension looked set to give everybody a base income they could rely on in retirement, expected to be worth around £155 a week, or £8,060 a year.
It wasn’t riches, but it was a start.
Muddle From Misery
Even better, by giving people a clear idea of how much money they would get, it allowed them to work out how much they needed save under their own steam, to top-up their state support.
The new, clean system also looked set to tidy up the muddle of basic state pension, state second pension, pension credit, means testing and other miseries politicians have inflicted on pensioners over the years.
It was an illusion, but it was nice while it lasted.
Pensions Pain
Now it seems that as many as four out of five older workers could get far less than £155 a week when the flat-rate pension is introduced in 2016, according to research by Money Mail.
Its investigation has uncovered a series of “nasty surprises that are highly complex and technical”.
Which is hardly surprising, given that we are talking about pensions.
You’re £2,000 Down
Instead of £155, many will end up getting the current state pension of £113.10 instead. That is £2,000 a year less than originally expected.
The people affected were typically members of a final salary pension scheme at some point in their working lives. As a result, they opted out of extra benefits such as the state second pension, and paid less National Insurance.
Now the government will cut their state pension for each year they opted out.
Worse, they are left with no idea how much pension actually will get.
Political Risk
None of which would surprise anybody who has paid an even passing interest to pensions in recent years.
Politicians have constantly meddled with the rules, repeatedly cutting the maximum amount you can save each year, and over your lifetime.
At some point, I am convinced they will slash the valuable tax relief you get on pension contributions, something they’ve been threatening to do for years.
Chancellor George Osborne’s recent decision to scrap the obligation to buy an annuity with your pension pot was a step in the right direction.
But it was also a kick in the teeth for anybody who had just taken out an annuity, on the assumption that they had no alternative.
They are stuck with that annuity for the rest of their life.
You’re On Your Own
Politicians can’t be trusted with your pensions. Even your company and personal pensions.
That’s why, if you can afford it, you should also build a portfolio of stocks and shares, and some cash savings, preferably using your tax-free Isa allowance.
Because if you can’t rely on the state pension, and you can’t, you can only rely on yourself.
