Only a third of people will get the full flat rate pension: will you?

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A study by Money Mail has calculated that in the first year of operation of the new flat rate state pension - which starts in April 2016 - just 222,000 of the 600,000 people hitting state pension age will qualify for the full pension. This includes 30,000 people who had thought they would be entitled to £151.25 a week, and will be shocked to discover the reality.

The difference comes from a gap between estimates released in June last year and new figures that show only 37% of people will be able to claim the full amount in the first year.

Why payments are reduced
A huge number of those affected are women who took a career break to deal with caring responsibilities, and as a result do not have the full 35 years of National Insurance contributions they need in order to qualify. The good news for them is that they can apply for credits to reflect some of the years they were caring for family members. They are also able to buy additional years of contributions - assuming they can afford it at such late notice.

Another group facing a nasty shock are those who at some point in their life opted out of the state second pension - in return for lower National Insurance contributions into a company pension or contributions into a personal pension. This was known as contracting out. The government has reasoned that because you are likely to have a pension elsewhere as a result of the time spent contracting out, you should get less from the state.
Is this fair?

In some instances, people contracted out as part of opting into a final salary pension, so they should have enough pension income from this pension to help them cope with smaller payments from the state. However, there are plenty of people who contracted out and built up paltry sums in personal pensions instead. Some of these pensions will earn them little more than a couple of hundred pounds a year, and in return they will lose a substantial chunk of their state pension.

To make matters even less fair, the government is not allowing people to work longer in order to make up for lower National Insurance payments as a result of contracting out - or buy any additional years.

Instead the government will work out what you could theoretically have made from the lower NI payments or sums paid into a personal pension, and the income you could theoretically get from it. They will then subtract this from the full state pension. There are concerns that the assumptions used in this calculation could be way off. In particular, it assumes that anyone who ever contracted out did so for their entire career. It means the system seriously hurts people who contracted out only briefly.

Over time, the percentage of people who qualify for the full state pension will rise, so that a few years in almost half of pensioners will qualify. However, there will still be those paying a huge price for a decision they cannot have known would hurt them in this way.

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Only a third of people will get the full flat rate pension: will you?

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.


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