MSE News: Budget 2012: Single state pension plan confirmed

gterr

Hi there,

I understand most of this discussion except for the 'contracted-out' bit, and how to calculate the impact of it.

My employment history includes two periods of about 5 years each in final salary schemes (JSS and USS). I had deferred benefits but the pensions are now in payment due to ill-health. I am 58 and female. Can I assume I was contracted out during the 10 years I was enrolled in these schemes, or can I check somehow?

The rest of my employment history includes some NI credits for when I was sick, and also about 15 years of Class 2 NICS for self-employment, which are still ongoing.

I got a pension forecast in 2010 which said I already had 32 qualifying years. It didn't make any mention of any contracted-out periods (but perhaps it wouldn't have anyway).

I've just sent for a new pension statement. I know this will show the number of qualifying years I have, but will it say anything about my contracted-out period?

Assuming I'm able to keep working until I get 35 qualifying years, will I get the flat-rate £144, or will I have a reduction for the contracted-out period, and is there any way I can predict what this will be? Would there be any advantage at all in achieving more than 35 qualifying years, e.g. to offset any reduction for a contracted-out period? This is crucial, since I am already planning to wind-down the business.

Many thanks for your time.

jamesd

The HMRC Contracted Out Pensions Helpline will be able to tell you that you were contracted out. It's very likely that you were. The qualifying years part refers to qualifying years for the basic state pension portion, not the additional state pension that you were probably contracted out of. The state pension mainly consists of those two pieces that are added together, though there are some older schemes that could also be present.

The proposed plan will have some deduction for those who have not started to receive their pension by the time it comes into effect.

However, this appears not to affect you because it seems that you will reach state pension age before the proposed implementation date for this new scheme, which is proposed to apply only from April 2017 or perhaps later. So you would be paid based on the current rules because you reach state pension age before then.

Verify that your state pension age is before 2017 then if it is you can mostly forget about this change.

SnowMan

cyclonebri1 wrote: »

Ok, the reason I originally was confused was that all the headlines the other day referenced to having to have 35 years pension credits, it seemed to infer there was a different No of credit years to qualify as against the No of actual qualifying worked years.

It wasn't an issue that affects me, as explained I'm already retired on a private pension and we both have over 35 years qualifying anyway.

But just to ask again as it is all a wee bit confusing when everything hare is read;

Is it cast iron that anyone who has full (35 yr now) entitlement, and has over the new basic rate, (made up by serps or the older 2 pension), will not lose anything they have already earned???

Yes I am a bit slow some days and I admit to not reading evry strand of posted text.:A

Yes you will get the same state pension as you would have got under the old system.

That is because there is an effective guarantee that you will get at least as much state pension as you would have got based on the old system for credits and contributions up to 2017, so your basic state pension and additional state pension accrued up to 2017 calculated on the old system basis are protected.

The basic approach is that past state rights are protected but that some people may accrue less future state pension after 2017. So somebody who has a foundation amount of over £144 can't accrue further state pension whereas they might have done under the old system, for example they typically under the old system would have been able to accrue some additional state pension even if they had reached the old required 30 years for full basic state pension.

cyclonebri1

Thank you, all I needed to know, :T:T:T

SnowMan

Iceweasel wrote: »

I've read most everything - can't say I've understood it all though.

We still can't find what would happen in our case - hypothetical perhaps, but worryingly possible.

Husband gets pension based on over 35 years contributions within the next year or so, but dies before wife reaches her pension qualifying date which is over 15 years away. Wife has no contributions to speak of - yet!

Sent off today for a pensions statement for both of us - can't see us getting a reply soon with all the folks who are confused and need a new prediction.

I get the feeling we may as well pay a fortune teller to look into her crystal ball.

- Under the current system if your husband reaches SPA and dies before you reach your SPA see the TPAS website here
- Under the new proposed system this is what the white paper says


BASIC STATE PENSION
From annex 3 page 96 para 28 re basic state pension. I can't work out from this if your husband died after the new system was introduced whether you would be able to use his national insurance contributions to supplement your own record when your own state pension became due, I think it implies you can, but it isn't at all clear. You can substitute these contributions under the old system giving you a full state pension after your reach SPA in the event of his death before you reach SPA. Assuming you can substitute his contributions that means when you reach SPA under the new system (after your husband has earlier died after 2017) you will be able to get a full basic state pension.

Derived rights
28. A person who is, or who has been, married or in a civil partnership may be able to qualify for a basic State Pension or an increase to their own basic State Pension based on the National Insurance record of their spouse or civil partner. This can provide a basic State Pension of up to £64.40 for a married person or civil partner and up to £107.45 for a widow, widower or surviving civil partner or a person who is divorced or whose civil partnership has been dissolved (2012/13 amounts).

29. These provisions go back to the establishment of the state pension system in the post-war period, and were originally designed to ensure a pension would be paid to a dependent wife when her husband retired or she was widowed or divorced, on the assumption that she would have little
or no state pension in her own right.

30. Consequently, they apply only where the person’s own National Insurance record does not provide a basic State Pension of equivalent value and are now mainly used to top up a person’s basic State Pension to that level. For example, a widow who had 25 qualifying years in her own right could have her own basic State Pension of £89.54 increased by £17.91 using her late husband’s record to provide the full basic State Pension of £107.45.

31. People who retire under the current system will continue to be able to use these provisions even if their spouse or civil partner is in the single-tier system. However, contributions a person pays or is credited with into the new system will only count towards their own state pension. This means that the Government will only use the National Insurance records of an individual’s spouse or civil partner up to and including the tax year before the implementation of single tier to calculate any derived entitlement.

ADDITIONAL STATE PENSION
From annex 3 page 97 para 92 of the white paper re additional pension

42. Transitional arrangements will allow inheritance of additional State Pension entitlement (determined under current rules) to continue under the circumstances set out below, where either the survivor or the deceased is in the single tier:

A - not relevant
B - not relevant

C - Where the survivor reached State Pension age under single tier, and the deceased reached State Pension age under the current system or died under State Pension age before the implementation of single tier

As the deceased could only have made contributions prior to the implementation of the single-tier pension, the survivor will be able to inherit an amount equal to the additional State Pension entitlement they could have inherited under current rules, with the additional condition that the marriage or civil partnership must have begun before the implementation of single tier.

If the survivor is bereaved under State Pension age and after the new bereavement support payment is introduced, their inherited additional State Pension will not be reduced based on their age when bereaved or when their youngest child ceases to be dependent. The inherited amount will be paid in addition to the survivor’s single-tier pension.

43. In all cases, as now, a person who is under State Pension age when bereaved will not be able to inherit state pension from the deceased spouse or civil partner if he or she re-marries or forms a new civil partnership before State Pension age

In summary I can't really work it out. But best guess is that it will be fairly similar to what would happen in the current system if your husband reaches his SPA and then died before you reached SPA. Amongst other things it looks like you would be able to substitute his contributions into your record to get a full basic state pension after you reach SPA. However it doesn't say that clearly in the report so that is a guess.

zagfles

Iceweasel wrote: »

I've read most everything - can't say I've understood it all though.

We still can't find what would happen in our case - hypothetical perhaps, but worryingly possible.

Husband gets pension based on over 35 years contributions within the next year or so, but dies before wife reaches her pension qualifying date which is over 15 years away. Wife has no contributions to speak of - yet!

Sent off today for a pensions statement for both of us - can't see us getting a reply soon with all the folks who are confused and need a new prediction.

I get the feeling we may as well pay a fortune teller to look into her crystal ball.

The general rule is that no inheritance of spouse's pension/NI record will be allowed underthe new pension, but there are transitional arrangements esp for women who've paid the reduced NI rate intending to rely on their husband's contributions. See annex 3 of the white paper - it looks quite complicated I've not read it in any detail.

zagfles

jamesd wrote: »

Why not look at bigger injustices, like:

"These proposals imply a cut in pension entitlements for most people in the long run", including those who were born in 1986 or later and "arguably" those born from about 1970.

As the story you linked to mentioned, around 80% of people have been contracted out at some point so the injustice that worries you is going to possibly benefit a lot of people, in the name of trying to get everyone to the new level without making too many current voters worse off. The self-employed are the really big "contracted out" group that benefits, because the self-employed don't currently have to pay contracted in NI rates.

What we have here is a proposal that benefits the baby boomer generation at the expense of the subsequent generations.

Or put in more political terms: buying the votes of the current voters who are more likely to be paying attention to pensions, at the expense of the relative youngsters and those not born yet.

Not really because the IFS are comparing the current system, ie together with the changes made since 2002 which have benefitted low income workers, women and carers etc, with the new system.

Not the system the "baby boomers" grew up with and used to accrue their state pension.

For instance someone earning just above the LEL would have accrued hardly any SERPS/S2P before 2002, but the rules put in place after then allowed them to accrue a large amount of S2P. So a "baby boomer" on a low income would get far less state pension than someone born in 1986 on a low income, under the current rules. Since the former would only get S2P credits for employment after 2002, whereas the latter would get S2P their whole working life.

So the new rules equalise them.

Anyway glad the IFS highlight the contracted-out/in unfairness.

gterr

jamesd wrote: »

The HMRC Contracted Out Pensions Helpline will be able to tell you that you were contracted out. It's very likely that you were.
The proposed plan will have some deduction for those who have not started to receive their pension by the time it comes into effect.

However, this appears not to affect you because it seems that you will reach state pension age before the proposed implementation date for this new scheme, which is proposed to apply only from April 2017 or perhaps later. So you would be paid based on the current rules because you reach state pension age before then.

Verify that your state pension age is before 2017 then if it is you can mostly forget about this change.

Thanks for the info. Maybe I made a typo in my original post. I will not get my pension until I am 66 which will be in 2021, so the new proposals will affect me.

Could you tell me if having more than 35 qualifying years could possibly improve my pension?

Many thanks

gadgetmind

zagfles wrote: »

Anyway glad the IFS highlight the contracted-out/in unfairness.

But was it really unfair?

Everyone knew that contracting out early was probably better as money in a pot of assets would have chance to compound, but that you'd then be better contracting back in later in life to build S2P. I therefore contracted out in my late 20s and back in during my early 40s.

Of course, even a sound theory can fail in practice, and contracted out pots had the rapids of the naughties to ride, but at least risk was diversified between the markets and HMG's ever-changing rules.

My understand is that *everyone* was able to contract out before this April. If they didn't, is that unfairness or people making their own decisions?

zagfles

gadgetmind wrote: »

But was it really unfair?

Everyone knew that contracting out early was probably better as money in a pot of assets would have chance to compound, but that you'd then be better contracting back in later in life to build S2P. I therefore contracted out in my late 20s and back in during my early 40s.

Of course, even a sound theory can fail in practice, and contracted out pots had the rapids of the naughties to ride, but at least risk was diversified between the markets and HMG's ever-changing rules.

My understand is that *everyone* was able to contract out before this April. If they didn't, is that unfairness or people making their own decisions?

You don't seem to get the point.

The point is that someone who contracted out builds a pot elsewhere and gets less state pension as a result. That was the deal.

Now under the new rules, the person contracted out has the opportunity, after 2017, to earn back the state pension they forsook as a result of contracting out, and keep their contracted out pot, ie have their cake and eat it.

See the moneymarketing link posted earlier.