There have been several important changes to pensions that have been announced throughout 2017.
The uncertainty surrounding Brexit and where the UK economy is heading makes this autumn a particularly difficult time for clients to gauge the eventual size of their pension and when they might be eligible to receive it.
With this in mind, here is a brief summary of the new changes to the state pension announced in 2017.
Why are these changes happening?
Brexit! After Britain announced its plans to leave the European Union, the pound’s value has fallen, which in turn has seen imports become dearer.
This has meant in September the UK’s key inflation rate hit a high of 3% – the highest level since 2012.
This impacts on everyone including business owners, employees and pensioners. However, it seems that pensioners may have the biggest cause to celebrate. With inflation running higher than either wages or 2.5%, this will determine the rise in the state pension next year, arguably making retirees the biggest winners from the recent inflation figure announcement.
What changes can we expect?
As of April 2018, state pension payments will rise in line with September’s CPI.
Those who receive the new state pension will see their weekly income rise from £159.60 to £164.38, with an annual income increase of £250.
Those on the old basic state pension will only see their state pension increase from £122.30 to £125.97 a week, giving an annual increase of only £191
How does that affect clients?
As September’s CPI figure is used as the basis for the payments, most public sector workers will see a significant increase in their accrued benefits, as of next year.
- Teachers will get a 4.6% increase (3% + 1.6%)
- NHS employees will get a 4.5% increase (3% + 1.5%)
- Police officers will get 4.25% (3% + 1.25%)
Small businesses will also see a significant rise in rates, with as many as 1.8 million businesses paying more. According to the British Retail Consortium, businesses will be liable for an extra £273m from 2018, on top of the rates evaluation in April this year.
Furthermore, the lifetime allowance will rise by 3%. Currently, if a client’s pension pot is worth more than £1m, they pay a 55% tax charge on any withdrawals on the excess. However, from April next year, they will now be allowed to save an extra £30,000 without paying this tax.
This year has brought a large amount of financial change across the country, and with Philip Hammond’s Autumn Budget speech launching further disruption, Britain can expect big changes to the way pensions will work in the years ahead.
Nigel Swan is head of pensions at Ellis Bates
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