Umbrella Company Employees anxious about post-retirement finances may be interested to hear about radical changes to the state pension system, which will result in a flat rate alternative from April 2017.
Speaking to the BBC, pensions minister Steve Webb said: “At the moment, nobody has a clue what the state is going to pay them. We have a basic pension, a second state pension, a pension credit – it’s fiendishly complicated. So we are proposing a simple system, not a more expensive one… that will help people plan for their retirements.”
He added: “Now, men and women will build up pensions in their own right. And women coming up to pension age who have got a damaged pension record, because they brought up children, will have that restored.”
Presently, the full state pension stands at £107.45 per week, but with a combination of the state second pension and pension credit it can be topped up to £142.70. The new flat rate pension will be £144 per week when it is introduced in 2016, but will include additional inflation rises between now and its introduction in 2017.
The measure, which merges the basic state pension with the second state pension into a single payment, is the biggest revamp of the pension system in England, Wales and Scotland for decades.
Umbrella company employees will have been building up their state pension in the same way as every other employee, through national insurance contributions. However, for many contractors, there may be periods where they aren’t working, or their contributions have been fragmented through working self-employed or through limited companies, so this is a good equaliser. They will be “unequivocally better off” under the new system, according to the director of the Institute for Fiscal Studies, Paul Johnson, as the self-employed do not currently qualify for the second state pension but will be entitled to the full £144.