# MSE News: Government outlines flat-rate state pension

edited 30 November -1 at 1:00AM
in Pensions, Annuities & Retirement Planning

373 replies
47.8K views

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## Replies

- For those planning to defer taking their State Pension to build up a higher entitlement: under the current system the pension is increased by 1% for every 5 weeks deferred; under the new system it seems likely that this will change, the modelling presented to government assumes 1% for every 10 weeks deferred (strictly speaking this is nothing to do with the concept of Single Tier - it just happens to be coming in at the same time)
- For those banking on their spouse inheriting a certain amount from their State Pension entitlement: under the current system the spouse inherits half of the Additional Pension plus any increase due to deferral on the whole of the Basic plus on half of the Additional; under the new system they inherit half of the Protected Payment. (Simple example: Basic Pension £100, Additional Pension £50 deferred for 50 weeks. Protected payment = £100 + £50 - £144 = £6. Current system spouse inherits £10 (increase on basic) + £25 (half Additional) + £2.50 (increase on half additional) = £37.50 per week. New system spouse inherits half protected = £3 per week.
- For those with Contracted Out service pre-April 1997. Example (as simple as I can make it!). Basic Pension £100, Additional Pension £100, COD £50 (all COD relates to pre-1988). Initial payment under current system £150 per week (Basic + Additional - COD). Under new system Initial payment would also be £150 per week. After, say, 10 years with earnings inflation and price inflation both equal to, say, 3% under the current system the Basic and Additional would both have increased to £134 per week (to nearest pound), still worth the same as today, but the COD would remain the same at £50, so the total under the current system in 10 years time would be £218 (£134 + £134 - £50). Under the new system in 10 years the payment would be £202.

Assuming you mean 'Rebate Derived Amount (RDA)' rather than Contracted Out Deduction then DWP have published a Single Tier Technical Note (sorry, I'm not allowed to include links), para 42 of which describes the derivation. It is not totally clear what it means, but my interpretation is that the total RDA is calculated by performing the SERPS calculation for each year of contracting out between April 1978 and present (yes, I do mean SERPS even though it was replaced by S2P in 2002!). [It is possible that for years after April 2012 the divisor is not the length of the working life but some other number, possibly 44.]One day I might submit a short post.

So if someone left service in a final salary pension in 1995, their GMP paid by the scheme would increase at 7% pa as would their COD. Would they carry on getting the GMP 7% pa increases, but not get the 7% pa increase in the COD after the switchover date? Effectively getting a 4% real terms increase in the GMP part (assuming 3% inflation)?

So basically the same as the COD calculation.

Please don't - the more info the better:)

Yes. Thanks.

Well in the case of both mine and my wife's, the GMP is increased by the fixed revaluation and the excess above the GMP is increased by RPI capped at 5%. So the GMP increasing at a faster rate doesn't reduce the excess, if that's what you meant. I've done a calculation comparing different years' statements to make sure this is the case, and it is.

So the GMP increasing at a faster rate does mean we get more from the scheme initially, however under the current state pension rules, it also means the COD increases at the same rate as the GMP, so there isn't actually any benefit (unless the COD ends up more than the additional state pension, which wouldn't have been the case with us).

But AIUI from the changeover in 2016, we'll get the benefit of the GMP increasing at a faster rate, without the offset of the COD increasing at the same rate, so we'll benefit initially, however once in payment we won't get the benefit of the inflation increases on the GMP at all for pre-88 GMP and above 3% on post-88, which under the old scheme we'd have got from the COD staying the same on pre-88 and going up at 3% max on post-88. Luckily we have very little pre-88 GMP. So I think we'd benefit from this.

Looking at the link I posted above it seems the way mine and my wife's schemes work is statutory, ie the GMP and pension in excess of the GMP are increased separately, rather than the GMP being increased and that increase being absorbed into the overall increase for the total pension, which I think you were implying.

Apologies, it seems I was wrong - not sure where I got my idea from.

Agreed, I was wrong again!

Agreed

Hopefully I'll learn from some of my mistakes - but no promises.

Don't know whether anything has changed in the past 6 months or whether this necessarily has anything to do with increases of GMP during deferment. But, no wonder people get confused.

My retirement date is March 2016.

I have savings so can't be means tested.

My question is:

For 2weeks after retiring I'll receive the basic £107

Will this figure rise to £144 in the April or will I be locked into £107 for ever.

Any thoughts appreciated