Managing Your Money 

Autumn statement: A good time to be a pensioner

Chancellor George Osborne delivered "unprecedented support" for pensioners, but nothing for pension savers. The basic state pension will rise to £119.30, a rise of £3.35, the greatest increase in 15 years. Mr Osborne said the triple lock will be maintained. This means the state pension will rise in line with the higher of earnings, inflation or 2.5 per cent.

Richard Priestley, executive director of retirement income at Canada Life, said: "The move by the chancellor will protect the incomes of pensioners, helping cement the rapid income gains they have enjoyed of late. In the last 20 years, retired households have seen their incomes climb to record highs, up by 77 per cent in real terms. This has far outstripped growth seen by the rest of the population. The state pension alone makes up two-fifths of a typical household's income, so this latest move is a boost pensioners will certainly enjoy."

The chancellor also confirmed that the new single-tier state pension that will replace the basic state pension and the additional state pension from April 2016 will be £155.65 a week.

The new single state pension requires 35 years of National Insurance (NI) contributions to get a full pension.

However, figures released earlier this year from the Department for Work and Pensions (DWP) showed that in the financial year from April 2016 (when the single-tier state pension will be introduced) to April 2017, only 20,000 women will qualify for the full amount, compared to 130,000 men.

Employees who have paid lower NI contributions via workplace pension schemes may get less than the full amount.

Richard Parkin, head of retirement at Fidelity International, says: "At just over £155, the single-tier state pension is undoubtedly a generous deal. However, it is important that we recognise that not everybody will get this.

"People, who at some point in their working life were "contracted out" of the state second pension in return for paying less NI, will find that this impacts adversely on their state pension entitlement.

"Figures from the DWP show that of the people reaching state pension age in the next 20 years, 80 per cent will have been contracted out at some point. Consumers should look to see what they will actually get by filling in form BR19 from the DWP to get a full statement of their benefits."

Until April 2017, the government is offering all those over 65 years of age the opportunity to buy up to £25 a week in extra state pension for the rest of their life by purchasing Class 3A National Insurance contributions. This could be good value for money if you expect to live beyond average life expectancy: https://www.gov.uk/state-pension-topup

The Chancellor’s Autumn Statement contained little of direct impact for investors with no new measures on pensions or other savings schemes. Indeed, in the small print of the accompanying documents it is made clear the individual savings account (Isa) allowance for 2016/17 will be held flat on the current allowance at £15,240, and similarly the Child Trust Fund and Junior Isa allowances will be held at £4,080 for the next tax year.

The government is still in a consultation period regarding pension tax relief and the result of this will be published in the March 2016 Budget. Cuts to tax relief are widely predicted.

It had been forecast that to avoid a rush of money into pensions from Britain’s top earners, understandably keen to take advantage of the higher tax relief, Mr Osborne could set out immediate steps to stop this from happening in the Autumn Statement. This didn’t happen, meaning Britain’s higher earners have an extended window of opportunity to consider reviewing their pension tax relief strategy.