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    • Acquinas
    • By Acquinas 17th May 17, 4:45 PM
    • 107Posts
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    Acquinas
    Flat Rate State Pension
    • #1
    • 17th May 17, 4:45 PM
    Flat Rate State Pension 17th May 17 at 4:45 PM
    Have I got this right? The so-called new Flat Rate state pension of 159.55 isn't actually flat rate at all. The 159.55 represents basic pension plus re-packaged SERPS/S2P and that anyone who has at any point been contributing to a DB or a DC scheme is going to get less than that because, by virtue of being contracted out of SERPS/S2P we would have been paying a lower rate of NI? If so, are we in danger of having the state pension effectively means-tested out of existence, or is there a safe floor rate equivalent to the old flat rate of 122.30? I'm sure that the answer is out there somewhere.
Page 1
    • molerat
    • By molerat 17th May 17, 5:06 PM
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    molerat
    • #2
    • 17th May 17, 5:06 PM
    • #2
    • 17th May 17, 5:06 PM
    At April 2016 you were given a starting amount of the higher of your entitlement under the new or old system even if it was more than the new "flat rate" pension. No one lost out on what they had already earned and in fact many gained - many of those gainers being WASPE women but that is another story. From April 2016 anyone who has less than the new full pension can make that amount up with further contributions by whatever methods available provided they have years left until their state retirement age. The only losers are those starting out, they can only get up to 159.55 and not the 260 odd they could have made.
    Last edited by molerat; 17-05-2017 at 5:37 PM.
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    • dunstonh
    • By dunstonh 17th May 17, 5:14 PM
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    dunstonh
    • #3
    • 17th May 17, 5:14 PM
    • #3
    • 17th May 17, 5:14 PM
    The so-called new Flat Rate state pension of 159.55 isn't actually flat rate at all.
    Flat rate is one of the names that some people have used for it.

    The 159.55 represents basic pension plus re-packaged SERPS/S2P and that anyone who has at any point been contributing to a DB or a DC scheme is going to get less than that because, by virtue of being contracted out of SERPS/S2P we would have been paying a lower rate of NI?
    Not necessarily. Whilst there is a transitional period between the old and the new, it is possible to have been contracted out under the old and still receive the full rate under the new. All depends on your qualifying years.


    If so, are we in danger of having the state pension effectively means-tested out of existence,
    There is no means test applied.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • GSP
    • By GSP 17th May 17, 5:28 PM
    • 84 Posts
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    GSP
    • #4
    • 17th May 17, 5:28 PM
    • #4
    • 17th May 17, 5:28 PM
    Molerat
    "From April 2016 anyone who has less than the new full pension can make that amount up with further contributions by whatever methods available provided they have years left until their retirement age".

    At the end of your sentence above, do you mean State Pension age. Thanks
    • hyubh
    • By hyubh 17th May 17, 6:57 PM
    • 1,755 Posts
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    hyubh
    • #5
    • 17th May 17, 6:57 PM
    • #5
    • 17th May 17, 6:57 PM
    The 159.55 represents basic pension plus re-packaged SERPS/S2P and that anyone who has at any point been contributing to a DB or a DC scheme is going to get less than that because, by virtue of being contracted out of SERPS/S2P we would have been paying a lower rate of NI?
    Originally posted by Acquinas
    Take two people in their forties, both who have been employed since school, however the first contracted out in a DB scheme and the second contracted in (their employer either didn't offer a pension scheme, or only a poor DC one). Both then continue to work until SPA.

    With the changes, the first person will end up with a higher state pension than they would have otherwise had (+ still with the DB pension that the lower NI partly paid for), due to the fact from April 2016 they started to accrue NSP at the normal rate, and could therefore now earn state pension into the old SERPS levels. In contrast, the second person ends up with a lower state pension than they would have had, due to how the maximum single tier state pension is lower than what even lowly paid full time workers would have earned, over their lifetime, under SERPS/S2P. While older people who have already earned basic + additional state pension over the single tier amount keep the excess, those that would have done in the future lose out.
    • dampsquib
    • By dampsquib 18th May 17, 2:32 AM
    • 164 Posts
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    dampsquib
    • #6
    • 18th May 17, 2:32 AM
    Simplified Flat-Rate Pension(?)
    • #6
    • 18th May 17, 2:32 AM
    Have I got this right? The so-called new Flat Rate state pension of 159.55 isn't actually flat rate at all.
    Originally posted by Acquinas
    R4's Money Box quoted someone as saying 'Two things are clear about the new simplified flat-rate pension: it's neither simple nor flat-rate'.
    I thought the quote was brilliant!
    • JezR
    • By JezR 18th May 17, 9:58 AM
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    JezR
    • #7
    • 18th May 17, 9:58 AM
    • #7
    • 18th May 17, 9:58 AM
    The flat rate element is how it is built up - one year of NI after its introduction = 1/35 of a new state pension.

    The mess is dealing with the transition.
    • Silvertabby
    • By Silvertabby 18th May 17, 10:10 AM
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    Silvertabby
    • #8
    • 18th May 17, 10:10 AM
    • #8
    • 18th May 17, 10:10 AM
    The flat rate element is how it is built up - one year of NI after its introduction = 1/35 of a new state pension.

    The mess is dealing with the transition. Posted by JezR
    The transitional arrangements weren't set up just to 'reduce' the pensions of those who had been contracted out, but also to protect those who had already built up more than 155 per week due to SERPS/SP2.

    It would probably have been cheaper to just pay everyone 155 after April 2016 - but the screams from those who would have received 260 under the old scheme would have been as loud as the screams from those who mistakenly assumed that they would get 155 on top of their contracted out occupational pensions.
    • JezR
    • By JezR 18th May 17, 10:42 AM
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    JezR
    • #9
    • 18th May 17, 10:42 AM
    • #9
    • 18th May 17, 10:42 AM
    But for those starting out in their working life it is flat and simple.

    There are a number who might be considered losers from the transition compared with what they may have got if the previous system had been perpetuated, but those contracted out who still have enough time below SPA to reach the new SP max level aren't amongst them.
    Last edited by JezR; 18-05-2017 at 10:04 PM.
    • greenglide
    • By greenglide 18th May 17, 1:37 PM
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    greenglide
    For those who dont get the full new State Pension there is still the possibility of Pensions Credit which is pitched just below the nSP 100% rate.

    Of course PC is still, as always, means tested.
    • GibbsRule No3
    • By GibbsRule No3 18th May 17, 2:39 PM
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    GibbsRule No3
    Is the reason you can only get it for "full" years up to State pension age because if you stayed at work longer you would not pay NI? I gain because I was contracted out but need to work until 2020 March when SP kicks in but I believe April would have given me another year.
    Last edited by GibbsRule No3; 18-05-2017 at 2:43 PM.
    Paddle No 21
    • bigadaj
    • By bigadaj 18th May 17, 9:43 PM
    • 8,930 Posts
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    bigadaj
    The transitional arrangements weren't set up just to 'reduce' the pensions of those who had been contracted out, but also to protect those who had already built up more than 155 per week due to SERPS/SP2.

    It would probably have been cheaper to just pay everyone 155 after April 2016 - but the screams from those who would have received 260 under the old scheme would have been as loud as the screams from those who mistakenly assumed that they would get 155 on top of their contracted out occupational pensions.
    Originally posted by Silvertabby
    It might not have been your intention but even the quotation marks for the reduction of contracted out pensions is still wrong.

    The transitional arrangements mean that no one should be worse off than they were under the old system, and those contracted out would still get the basic pension of 119, or whatever they were entitled to under the old system.
    • Silvertabby
    • By Silvertabby 19th May 17, 7:28 AM
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    Silvertabby
    “ The transitional arrangements weren't set up just to 'reduce' the pensions of those who had been contracted out, but also to protect those who had already built up more than 155 per week due to SERPS/SP2.

    It would probably have been cheaper to just pay everyone 155 after April 2016 - but the screams from those who would have received 260 under the old scheme would have been as loud as the screams from those who mistakenly assumed that they would get 155 on top of their contracted out occupational pensions.
    Originally posted by Silvertabby
    It might not have been your intention but even the quotation marks for the reduction of contracted out pensions is still wrong.

    The transitional arrangements mean that no one should be worse off than they were under the old system, and those contracted out would still get the basic pension of 119, or whatever they were entitled to under the old system. Posted by bigadaj
    Yes I know, hence the q marks.
    • Acquinas
    • By Acquinas 19th May 17, 8:40 AM
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    Acquinas
    Thanks for the explanations, though it seems that if there had been a deliberate attempt to make things opaque then they could hardly have done better. I think my levels of knowledge of how the state pension works are possibly marginally better than that of the man on the Clapham omnibus. Indeed I worked for DWP Pension for 10 years and was possibly one of the last cohort trained to calculate all elements of state pension from first principles before they deskilled it all and made an expensive computer to get it wrong. The basics seem pretty clear: pay more years NI, get more pension. That has always been the case. But I would hazard that there would be few in the Pensions Service who could actually tell you the amount by which your pension is going to be abated by virtue of contracting out. I guess we just have to trust the computer and plan on the basis that it will be lower rather than higher.
    • Dazed and confused
    • By Dazed and confused 19th May 17, 8:58 AM
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    Dazed and confused
    What abatement? No one will get less than originally expected and plenty will get more.

    Some are in the lucky position of having a lowish starting amount equal to what they would have got under the old rules because they have benefitted from contracting out and have future years of work where they will gradually increase the amount they will receive to the full flat rate pension.

    It seems this is a case of glass half empty or half full??
    Last edited by Dazed and confused; 19-05-2017 at 9:00 AM.
    • molerat
    • By molerat 19th May 17, 9:12 AM
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    molerat
    Glass half full here.

    I retired at 55 knowing I was going to get, at today's rate, 140 and all my planning was on that figure, that was all I could get. Along comes the new system and by using some of my savings I will be able to boost that to 153. Not a lot but a good investment of my savings.

    MrsM had 101 with an option to buy in to 122. All of a sudden she has 123 and can up that to the magic 159. Even better still, as she looks after the grandchildren, the government will give her some of those contributions she was going to buy and save her around 3K.

    What is not to like about the new pension.
    Last edited by molerat; 19-05-2017 at 9:17 AM.
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    • Acquinas
    • By Acquinas 19th May 17, 10:44 AM
    • 107 Posts
    • 66 Thanks
    Acquinas
    Maybe I am glass half empty, but I see it like this. I was contracted out and paid a lower rate of NI while building up a DB pension. That saved HMG money because I was not qualifying for SERPS/S2P, but I was paying NI and building up state pension. Those who remained contracted in paid more NI and earned themselves SERPS/S2P. That's fair. Now my basic state pension will be reduced on account of my DB pension, and I won't be getting any SERPS/S2P element. That is an abatement. But it was already reduced on account of my not qualifying for SERPS/S2P. It seems that this new arrangement benefits mainly those who have not taken care to plan and manage their own pension arrangements - as we were heavily encouraged to do. I'm beginning to think that I may as well have blasted the money away rather than make contributions.
    • JezR
    • By JezR 19th May 17, 11:08 AM
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    JezR
    Your pension has not been reduced. In your circumstances you will as a minimum receive exactly what you would have received if there had been no change, based on contributions made until the introduction of the new SP.

    What you do gain is the opportunity to increase this to the new state pension level as well as retaining what you built up elsewhere.

    So it actually benefits people who were contracted out providing they have some years left to pay NI. If you don't, you are no worse off than you would have been, as if you had been contracted out all your working life you would have only been entitled to the basic state pension, and the top up to the new state pension equivalent would have been delivered through your contracted out scheme.
    Last edited by JezR; 19-05-2017 at 11:12 AM.
    • Acquinas
    • By Acquinas 22nd May 17, 4:12 PM
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    Acquinas
    JezR, Ok I think I may be getting this. Under the "old rules" I would have qualified for the equivalent of 122.30. That is safe and nobody is taking it away. What I won't get is the 159.55. So how do I get it? I have a full NI record other than 3 student years and expect to be working and contributing into my 60s. Do I have to apply to pay some kind of enhanced NI in the years I have left working? And can I do that if I continue to be contracted out?
    • Linton
    • By Linton 22nd May 17, 4:39 PM
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    Linton
    JezR, Ok I think I may be getting this. Under the "old rules" I would have qualified for the equivalent of 122.30. That is safe and nobody is taking it away. What I won't get is the 159.55. So how do I get it? I have a full NI record other than 3 student years and expect to be working and contributing into my 60s. Do I have to apply to pay some kind of enhanced NI in the years I have left working? And can I do that if I continue to be contracted out?
    Originally posted by Acquinas
    Each NI year after April 2016 beyond the normal 35 year limit gives you an extra 1/35th of the full new state pension until you have reached the 159.55 equivalent.

    "Contracting out" was abolished as part of the new pension scheme.
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