Q. I reach my state pension age in May 2016, which as I understand it, is after the new flat rate of state pension will be introduced. I was therefore expecting a flat rate of pension of something like £150 per week. I have just received a state pension forecast and it is not as valuable as that. I am wondering how this can be as I thought everyone qualified for the new simple basic rate of state pension?
A. The single-tier state pension starting in April 2016 was billed as simple but unfortunately is anything but. Many people have read the press headlines and assumed if they had a national insurance record of 35 years or more they would automatically qualify for the full rate of the single-tier state pension which is currently £151.25 per week. Unfortunately this is not necessarily the case, as in reality, the amount you will get depends upon your years of national insurance contributions AND a deduction for any periods of time you spent contracted out of the state second pension (or SERPS as it was originally known). It has been estimated that only 45% of those retiring between 2016 and 2020 will qualify for the full flat rate single-tier pension. This is likely to be the reason why you are not qualifying for the flat rate amount.
Q. I am self employed and it has been suggested by my adviser that I should have Income Protection. It looks expensive to me and I can’t really see that it could be good value for money especially as I am unlikely ever to claim on it. What is your view?
A. Interestingly about half of all workers think the risk of being unable to work though illness is less than one in ten. In fact the risk is a lot higher, and every year 300,000 people go from work to welfare as a result of illness. There are several types of insurance that can be used alone or in combination to provide cover for a family, but the general public are not well informed about such products. Income Protection is certainly one of a range of products which can provide much needed income should you be unable to work due to illness or injury. Your are normally able to choose a “deferred period” of between four 4 weeks and one year, during which time no benefits would be paid by the insurer. The longer the deferred period, the lower the premiums are for the same level of benefit. But you would have to be sure that you could manage financially from your own resources during any deferred period selected before the benefits kicked in from the insurer. If your adviser has recommended it, I would be tempted to look at his or her proposal again and perhaps arrange a further meeting to discuss it in more detail.
