The State Pension Forecast

kuepper

I applied to get an online statement and on Thursday got an activation code to get a forecast. Having wasted half an hour trying to register through the govt gateway and another half hour ( and a couple of quid) on the phone passed between (un)help desks I was told I needed a special password that was being posted separately (tho the activiation code letter did not mention this).

The password arrived today and I got to my forecast but find it doesn't tell me anything definitive re additional pension. It says my additional State Pension and Graduated Retirement Benefit is estimated to be £22.90 based on NI contributions but adds that this could be lower if I was contracted out of the additional State pension between April '78 and April '97.

I am therefore no wiser than I was - what is the point in giving an amount if it might not be true and what is the point in the forecast at all if it doesn't tell you waht you want to know? As far as I know I was contracted out between '78 and '95 so how come they don't realise that? How would that affect it?

I clicked on the link to go to 'Your pension statement explained' but it's no help at all - it's actually only a FAQ re problems using the e-service generally not the statement itself.

srcandas

kuepper wrote: »

As far as I know I was contracted out between '78 and '95 so how come they don't realise that? How would that affect it?

Kuepper hope I'm reading your frustration right

Presumably they do know which is why you only have £22.90.

They leave it open incase you declare that you were not contracted out.

As I understand it you get currently £1.77 for a year earning a median wage. So extrapolating a bit about 15 to 20 years in your case. Or less years with big pay packets. Does that seem about right?

Calculate the number of years you think you worked and were not contracted out, look up the pension amount based on SERPS/SP2 whatever and go from there.

Clearly you need an idea based on other sources incase the HMRC are wrong.

For sure I'd say you learnt something. The least you likely able to count on is £22.90.

ps Web site worked like a dream for me so perhaps keupper was unlucky. Don't be put off

kuepper

srcandas wrote: »

Kuepper hope I'm reading your frustration right

Presumably they do know which is why you only have £22.90.

They leave it open incase you declare that you were not contracted out.

As I understand it you get currently £1.77 for a year earning a median wage. So extrapolating a bit about 15 to 20 years in your case. Or less years with big pay packets. Does that seem about right?

Calculate the number of years you think you worked and were not contracted out, look up the pension amount based on SERPS/SP2 whatever and go from there.

Clearly you need an idea based on other sources incase the HMRC are wrong.

For sure I'd say you learnt something. The least you likely able to count on is £22.90.

Hope you're right! - but if thats the case why do they say it could be LOWER? With my glass half empty I assumed the £22.90 would be the most I'd get - not the least - and that it might not even be that much if i was contracted out during the years stated. I've been PT on low wage since 1995 or incapacitated and not in a pension scheme so that'd be 18 full yrs by time i'm 65. TBH I'm a bit baffled about how to check calc of additional pension because of that, if it was what you say it should be ~£30.60??? But from what I read in different places even tho i was contracted out for 23 yrs I should still get some credit for that? Maybe it's cos i'm 64 but i can't believe it's all so complicated! Looking at
http://www.direct.gov.uk/dr_consum_dg/groups/dg_digitalassets/@dg/@en/@over50/documents/digitalasset/dg_180220.pdf
It gives an eg on p9 of someone with 40 yrs NI contributions getting £19.80 additional state pension - hows that worked out?

SeekTruth

kuepper wrote: »

... I assumed the £22.90 would be the most I'd get - not the least - and that it might not even be that much ...

Not surprising you're baffled. I think the government has tried to simplify the wording of the pension forecast, and in doing so has removed most of the actual information.

You haven't mentioned the Basic State Pension part of the forecast, so presumably you are 'happy' about that aspect.

With regard to the Additional Pension part, I think you'll find that they actually say your Payable Additional Pension is £22.90.

Payable Additional Pension equals Additional State Pension (ASP) minus Contracted Out Deduction (COD)

In your case, if I understand correctly, you were contracted out during some of the period April 1978 to April 1997. Between these dates all employees who earned enough to be credited with a year's state pension entitlement would also, unless they were incredibly close to the lower limit, have earned ASP. If they were contracted out they would also have a COD for that period. At the time the ASP and the COD would have been equal. (I attempt to explain how ASP and COD will change year-by-year further down this post!)

Between April 1997 and April 2002: Contracted out employees did not earn any ASP, and COD didn't apply. Non-contracted out employees who earned enough to be credited with a year's state pension entitlement would also, unless they were incredibly close to the lower limit, have earned ASP.

Between April 2002 and the present: Contracted out employees who earned enough to be credited with a year's state pension entitlement but earned less than some other amount (from memory this other amount was about £30,000 in 2008) would earn some ASP, and COD didn't apply. Non-contracted out employees who earned enough to be credited with a year's state pension entitlement would have earned ASP. I think that some non-employees entitled to certain benefits would also earn ASP.

In effect, the ASP from each year is revalued in line with the change in average earnings. The COD is also revalued each year.

If your contracted out service was with a public sector pension scheme then it is likely that the COD is being revalued each year in the same way as the ASP - in line with average earnings. In this case the Payable Additional Pension will also change each year in line with average earnings. My guess would be that it will therefore go up by a small percentage next year.

If you contracted out service was with a private sector scheme then it is quite possible that the COD is being revalued each year by a fixed percentage. If your deferment started in 1995 then this would be 7% per year. In this case, my guess would be that the £22.90 will drop next year, possibly even to zero.

xylophone

If you contracted out service was with a private sector scheme

It wasn't- he was with the LGPS.

kuepper

SeekTruth wrote: »

You haven't mentioned the Basic State Pension part of the forecast, so presumably you are 'happy' about that aspect. Yes I have 30 yrs contributions

With regard to the Additional Pension part, I think you'll find that they actually say your Payable Additional Pension is £22.90.

Payable Additional Pension equals Additional State Pension (ASP) minus Contracted Out Deduction (COD)

It doesn't mention the word 'payable', it says "We estimate that your additional State Pension and Graduated Retirement Benefit based on your National Insurance contributions to date is £22.90 a week. The amount of additional State Pension could be lower if you were contracted out during April 1978 to April 1997..." So I reckon its implicit that it will be subject to a COD so it will end up being less.

BTW my actual employment history is : worked in pvt sector for 2 yrs (I earned about £9- 13 pw so may have a tad GRB?), worked for 23 yrs in loc govt til 1995. Invalided for most of time since.

In your case, if I understand correctly, you were contracted out during some of the period April 1978 to April 1997. Between these dates all employees who earned enough to be credited with a year's state pension entitlement would also, unless they were incredibly close to the lower limit, have earned ASP. If they were contracted out they would also have a COD for that period. I was in a contracted out position April 78 to April 95, never earned more than £20k

Between April 1997 and April 2002: Non-contracted out employees who earned enough to be credited with a year's state pension entitlement would also, unless they were incredibly close to the lower limit, have earned ASP. How much - ie how is that calculated?

Between April 2002 and the present: Non-contracted out employees who earned enough to be credited with a year's state pension entitlement would have earned ASP. I think that some non-employees entitled to certain benefits would also earn ASP. How much ie how is that calculated?

In effect, the ASP from each year is revalued in line with the change in average earnings. The COD is also revalued each year.

If your contracted out service was with a public sector pension scheme then it is likely that the COD is being revalued each year in the same way as the ASP - in line with average earnings. In this case the Payable Additional Pension will also change each year in line with average earnings. My guess would be that it will therefore go up by a small percentage next year. It was public sector (local govt) . I really appreciate everything you've said and trouble youve taken but you use the words 'likely' and 'guess' - how can these things not be known?

Seems like after srcandas response I was prematurely optimistic, at least I have much more insight even tho it's still blurred at the edges!

xylophone

A relation of mine who will be 65 next month advises that he received a very detailed letter about his pension from the DWP in December.

He was contracted out for most (but not all) of his working life.

The letter was as follows ( with my annotations)

How your weekly rate of State Pension is made up:
Basic State Pension - based on National Insurance contributions £110.15 (BSP)

If your additional State Pension has been subject to a pension sharing order as a result of divorce or dissolution of a civil partnership, the amounts shown below will reflect this.

Additional State Pension –
based on your earnings from 6 April 1978 to 5 April 1997 £nnn (Let's call this £A)

Less Contracted-out Deductions (COD) of £nnn you earned from an employer's or personal pension scheme from 6 April 1978 to 5 April 1997 (Let's call this £B)

Additional State Pension to 5 April 1997 is £nnn (This is £A-£B) (ASP 1)


Additional State Pension based on your earnings from 6 April 1997 to 5 April 2002 £nnn (ASP2)

Additional State Pension based on your earnings (or credits given for any periods of caring or incapacity, if appropriate) from 6 April 2002 £nnn (ASP3)

Shared additional State Pension - arising from your divorce settlement or dissolution of a civil partnership settlement £nnn

Extra State Pension - for not getting your pension earlier
Extra basic State Pension £nnn
Extra additional State Pension £nnn

Money we pay you to protect, against inflation. the amount of any COD increments you get with an employer's pension scheme or a personal pension scheme £nnn

Extra Shared additional State Pension £nnn

Graduated Retirement Benefit - based on graduated contributions paid between 1961 and 1975 and any extra State Pension for not getting it earlier £nnn (GRB)


Invalidity Addition I Incapacity Age Addition - paid if you were entitled to Invalidity Allowance / Incapacity Benefit shortly before your State Pension age.
But any additional State Pension or COD have to be taken away.
So your Invalidity Addition / Incapacity Age Addition will be £nnn

Age Addition - extra money because you are 80 or over £nnn
Money you will get for other people £nnn
Attendance Allowance/Disability Living Allowance - to be paid with your State Pension £nnn

So the total amount of your State Pension each week will be £nnn ( In your case from what you have indicated this would be (BSP +ASP1 +ASP2 + ASP3 + GRB)?)

Here is a link relating to GRB http://www.needanadviser.com/html/article.php/zcid/354/type/article/finance/State_Graduated_Retirement_Pension_Scheme

And with regard to how your LGPS pension increases after you reach state pension age see my previous link http://www.yourpension.org.uk/Files/Files/In%20The%20Scheme/5.%20GMPGuide240211.pdf

kuepper

Thanks Xylophone. That's a relief, I should get the equivalent letter around May. I can then check the veracity of the content. Until you posted that I was just starting to panic reading the forums here and feeling like I needed to check things now but without having all the info to actually check anything against. I'd assumed the Pension forecast I'd asked for would provide such detail and when it didn't I thought I should better do my own research. At least I understand more now in advance. Thanks again, panic over.

SeekTruth

kuepper wrote: »

You haven't mentioned the Basic State Pension part of the forecast, so presumably you are 'happy' about that aspect. Yes I have 30 yrs contributions

With regard to the Additional Pension part, I think you'll find that they actually say your Payable Additional Pension is £22.90.

Payable Additional Pension equals Additional State Pension (ASP) minus Contracted Out Deduction (COD)

It doesn't mention the word 'payable', it says "We estimate that your additional State Pension and Graduated Retirement Benefit based on your National Insurance contributions to date is £22.90 a week. The amount of additional State Pension could be lower if you were contracted out during April 1978 to April 1997..." So I reckon its implicit that it will be subject to a COD so it will end up being less.

BTW my actual employment history is : worked in pvt sector for 2 yrs (I earned about £9- 13 pw so may have a tad GRB?), worked for 23 yrs in loc govt til 1995. Invalided for most of time since.

In your case, if I understand correctly, you were contracted out during some of the period April 1978 to April 1997. Between these dates all employees who earned enough to be credited with a year's state pension entitlement would also, unless they were incredibly close to the lower limit, have earned ASP. If they were contracted out they would also have a COD for that period. I was in a contracted out position April 78 to April 95, never earned more than £20k

Between April 1997 and April 2002: Non-contracted out employees who earned enough to be credited with a year's state pension entitlement would also, unless they were incredibly close to the lower limit, have earned ASP. How much - ie how is that calculated?

Between April 2002 and the present: Non-contracted out employees who earned enough to be credited with a year's state pension entitlement would have earned ASP. I think that some non-employees entitled to certain benefits would also earn ASP. How much ie how is that calculated?

In effect, the ASP from each year is revalued in line with the change in average earnings. The COD is also revalued each year.

If your contracted out service was with a public sector pension scheme then it is likely that the COD is being revalued each year in the same way as the ASP - in line with average earnings. In this case the Payable Additional Pension will also change each year in line with average earnings. My guess would be that it will therefore go up by a small percentage next year. It was public sector (local govt) . I really appreciate everything you've said and trouble youve taken but you use the words 'likely' and 'guess' - how can these things not be known?

Seems like after srcandas response I was prematurely optimistic, at least I have much more insight even tho it's still blurred at the edges!

Using the annotations provided in xylophone's post above.

You need a detailed earnings history to calculate £A and £B, but they should be virtually equal and so ASP1 (=£A - £B) will be close to zero.

ASP2 will be zero (assuming you didn't work between 1997 and 2002).

ASP3, if you are credited with the minimum per year, would now be worth just under £21 per week (this is my calculation, I wouldn't be at all surprised to be a pound or so out). I reckon this will go up by £2 by the time you get your detailed letter in about May.

Edit: 'A and B will be virtually equal and so ASP1 will be close to zero'. I believe this is true in the case being discussed in this thread but will not be true in general!

My understanding is that A and B will be equal (give or take some rounding differences) if both:
1. the person concerned had no contracted-in service between April 1978 and April 1997, and
2. either
a. the pension with the contracted-out provider has never been deferred, or
b. the contracted-out provider opts to revalue GMP during deferment by the Average Earnings method.

kuepper

ASP3, if you are credited with the minimum per year, would now be worth just under £21 per week (this is my calculation, I wouldn't be at all surprised to be a pound or so out). I reckon this will go up by £2 by the time you get your detailed letter in about May.

Seektruth, if I'm right, based on following one of the links from Xylophone (see last bullet pt here http://www.needanadviser.com/html/article.php/zcid/352/type/article/finance/State_Second_Pension_Scheme_S2P_2002_2012 , as I've been on invalidity for most of time post-2002, ASP3 will be on £1 a year not £1.70 which I assume you based your calc on???. So I'm guessing I will only end up with £11 ASP

Thanks for rest of info, i'm a lot clearer now.