MSE News: Government outlines flat-rate state pension

Paul_Herring

bowlhead99 wrote: »

NI is thought of as being ringfenced for pensions but it's not as if the cash paid in by you is personally ringfenced for you, because in practice what you can reliably get paid out is what the country can get from earners paying in when you're a retiree.

This is exactly why the UK state pension scheme is cited as an example of a 'legal' ponzi scheme.

And why without a fundamental change (instead of all this tinkering round the edges) there will always be problems with the state pension.

Paul_Herring

Mindovermatter wrote: »

Thanks, so I should have contracted out.....

Um...

Was listening to this morning's Wake Up To Money (Radio 5 Live, 5.30 am) on my way home from work this evening, and they were suggesting that those that did contract out may not get the full £144...

The plot thickens (April 2011 - can't find anything from today.):

Will those contracted out of the state second pension still get the new flat rate pension?

No.

The State Second Pension (S2P) replaced Serps (State earnings related pension scheme) in April 2002. These pensions are paid on top of the basic state pension. Those earning more than £5,720 a year qualify for this top-up pension, which is funded through their National Insurance contributions. However, those who are self-employed do not qualify at all, regardless of earnings. There have been moves in recent years to reduce the value of the S2P, particularly for higher earners.

If the Government decides to opt for a single tier pension the state second pension will disappear and those that have contracted out will get probably get less than the flat rate of £140. Workers, for instance, in final salary schemes are contracted out.

So consider someone who reaches state pension age retiring with a state pension worth £177.60 a week. If this person was contracted out of Serps between 1978 and 1997 and accrued a guaranteed minimum pension of £40 a week – which their scheme will pay – they will receive £137.60 a week directly from their state pension.

psychic_teabag

ISTR from previous reports on these pension reforms that those who had contracted out would get a reduced pension - presumably on the grounds that they'd already received some of it. Is that still the case or are they further-simplifying ? (Or did I misremember that rumour).

Mindovermatter_2

Paul_Herring wrote: »

Um...

Was listening to this morning's Wake Up To Money (Radio 5 Live, 5.30 am) on my way home from work this evening, and they were suggesting that those that did contract out may not get the full

(April 2011 - can't find anything from today.):

I've just found this, so someone my age who contracted out, can still make up the sort full to get full flat rate pension, as well as their contacted out pension.

Transition to the single-tier pension
21. The transition process for the single-tier pension will translate people’s pre-implementation National Insurance records into a simple single-tier starting amount – the ‘foundation amount’.
22. An individual’s National Insurance record will be valued using single-tier rules as at the implementation of the single-tier pension. Where an individual has previously been contracted out of the additional State Pension, a deduction will be applied, reflecting the fact that they have paid lower National Insurance contributions whilst they were contracted out, as is consistent with current practice.
23. As an added safeguard, the Government will check to see if the rules of the current system would give a better outcome. The higher valuation will then become that individual’s foundation amount.
24. Under this approach to transition, those reaching their State Pension age after the implementation of the single-tier pension will fall into four distinct groups:
• Individuals with a foundation amount which is equal to the full level of the single-tier pension. These are likely to be people who have the necessary 35 qualifying years, little additional State Pension and have not been contracted out.
• Individuals with a foundation amount which is less than the full level of the single-tier pension. These are likely to be younger people, with fewer qualifying years, or older people who have spent many years contracted out of the additional State Pension. These people will be able to increase their single-tier pension up to the full level, at the rate of 1/35th of the full rate (£4.11 to the nearest penny) for each additional qualifying year they gain before reaching their State Pension age.
• Individuals with a foundation amount which is more than the full level of the single-tier pension. These are likely to be older people with many qualifying years, and who have not spent significant periods contracted out of the additional State Pension. These people will receive the difference between their foundation amount and the full single-tier amount as an extra payment on top of the full single-tier weekly amount.
• Individuals with no pre-implementation National Insurance record. The simpler and easier to understand single-tier system will give them long term clarity of outcome. They will
also be supported to save into a workplace pension scheme through automatic enrolment and the policy measures set out in the Government’s ‘Reinvigorating Workplace Pensions’ document throughout all of their working lives.

Paul_Herring

Apparent source for those interested in the full document. (£21.25 for the paper document apparently!!)

downshifted

I predicted, when we first heard about it, that my husband would miss out on this new pension level - and he does, by a few months. In exactly the same way as I am in the first tranche of women whose pension age has moved from 60 to 65 and then to 66. Furthermore, my company pension has gone into the pension protection fund and has been reduced in value and will have lower inflation levels than I expected. We have always done the right thing and saved instead of spent - that's not what I will be recommending to my daughter - just what is the point? Go out and spend your cash - at least you have memories/things........all I have is empty promises.

Goldiegirl

I worked for an employer with a final salary pension scheme from 1981 to 2010, and was contracted out of SERPS.

I was made redundant at the age of 50 in 2010 and took a pension as part of my redundancy package.

Since then I've had a part time job. I do pay NI, but not much, as I don't earn much. I was intending to stop work in about 4 years time, when my husband retires.

I understand that when I'm 66 and get my pension it'll be reduced as I was contracted out, but I'm wondering how much it'll be reduced by.

Wonder whether it'd be the £40 pw mentioned in Paul Herring's post?

Does anyone have any thoughts on this?

psychic_teabag

Arthurian wrote: »

What about all those people who paid 'extra' contributions by cheque to make up for years when they didn't work enough hours to qualify for the full state pension? Turns out they didn't need to pay after all.

Too late now, though.

Am I right in thinking that you only get the full flat rate if you have 35 qualifying years of NI contributions ? You get less if you have fewer years ..?

In which case extra payments may not have been wasted.

Goldiegirl

Just read Mindoevermatters post, looks like I could make up the NI payments for the years I was contracted out.

Incidently, my husband will be 65 in Oct 2016, so he'll miss out on the new scheme, but he was contracted into SERPS so he'll get his second state pension

WISHIWASRICH_2

psychic_teabag wrote: »

Am I right in thinking that you only get the full flat rate if you have 35 qualifying years of NI contributions ? You get less if you have fewer years ..?

In which case extra payments may not have been wasted.

Yup. So if you have 30 years say you get 86% = 30/35