The transition to a new flat rate state pension could be eased if the government paid out S2P benefits in a one-off cash lump sum leaving the flat rate pension to continue as a regular weekly or monthly payment going forward, Barnett Waddingham consultant Malcolm McLean has advised.

Ministers currently have not explained in detail about how the transition is going to be conducted and there is a fear that a multitude of different rates will arise as a result of those people accruing benefits under SERPS/S2P and the new flat rate pension.

“To establish whether someone would be better off under the old system or the new would presumably mean a comparison having to be made between what the total pension benefits would have been and the new flat rate pension. If this were to show the old system producing a better result the excess would then be paid on top of the flat rate pension. Whether that would be on a permanent basis and uprated annually along with the main pension or as a frozen addition to be gradually eroded as the main pension was increased is not yet clear,” McLean stated.

He added that a suitable alternative would be to 'buyout' the excess in the form of a one-off cash lump sum leaving the flat rate pension to continue as a regular weekly or monthly payment, which would be “simpler to operate and easier to understand”.

Share Story: