Single tier state pension confusion.

slpj

Hi All,

I've read the piece about the state pension on the main site, and some gov't information about the single tier, but I'm still a bit confused.

I'm male, and due to retire in 2018. I've never been contracted out. I'm not working, and DON'T qualify for any benefits of any kind.

My current state pension forecast says this.

"We estimate that your State Pension, based on your National Insurance contributions record to date, is £144.56 a week.

So far you have 32 qualifying years, worth £110.15 a week.

We estimate that your additional State Pension and Graduated Retirement Benefit, based on your National Insurance contributions record to date, is £34.41 a week."

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So in total, at present, I'm due to get £144.56 a week.

But I understand that in future I'll need 35 years NI to get the full basic single tier state pension of £144 per week. So instead of 32/30*£110.15 -- i.e the maximum of £110.15, I'll get 32/35*£144 = £131.65.

This is and increase of about £21 on my current basic pension, but still less than the £144.56 I'm currently due to get. I understand that my "SERPS" contributions will no longer count, -- which seems somewhat unfair, since I didn't contract out. So I will lose £12.91 a week from my full state pension, as it's valued today..

So anyway, I thought the best thing for me to do, is to top up my NI contributions, for the missing 3 years, so that I at least get the full basic state pension of £144.

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35-32= 3 NI years needed. Hoping this will put me back to where I am currently.

But according to what I've read, I shouldn't do this yet because the final figures and arrangements for the single tier pension haven't been finished yet.

Before the NI qualifying years was reduced from 44 qualifying years, to 30 qualifying years, I got a letter telling me to top up my missing years. But very soon afterwards, the drop to 30 qualifying years was announced, and I was advised not to buy the missing years. Which was a shame because it would have been much cheaper back then.

Now again I don't know if I should but the extra 3 years I need.

Can anyone tell me what I should do, or when the exact figures and decisions on the single tier will be announced?

JezR

Your basic misunderstanding is that the second / additional state pensions would no longer count. Instead there is to be a calculation under the current and the new rules to generate the 'foundation' value at the point of transition.

As you have already worked out, on your current contribution record, the foundation would be based on the current, rather than the new method, as this is a bit higher, ie £144.56.

Since this is more or less the same as the single tier pension in your case there is no point in paying voluntary contributions now as they can't increase your payment. It may well be worthwhile after introduction, as you would be able to add on top of your current pension 144/35=£4.11 per week for each year paid.

greenglide

JezR wrote: »

Since this is more or less the same as the single tier pension in your case there is no point in paying voluntary contributions

Is the foundation amount calculated with 30 qualifying years for the existing pension and 35 years for the new STP scheme?

I am not convinced?

atush

It is my understanding (but am not sure) that the foundation amt is based on your qualifying years NOW (ie you have the max) plus your S2P.

Triumph13

I believe that atush is right - the foundation amount is calculated on contributions up to the point of conversion on both the old and new bases so in your case £144 on the old basis and £131 on the new. You get the higher ie the old.

My reading of the rules though is that any further years earned / purchased would be of no value to you. Years purchased before conversion wouldn't increase your foundation amount as the basic pension is already at the max. Years purchased after the conversion would have no value as all they can do is increase the foundation amount to the full single tier amount - but it looks like you will already be there.

My take would be definitely don't but any extra years before the move to single tier and check carefully after conversion to see how much gap, if any, there is between your foundation amount and the full single tier amount that could potentially give scope for purchasing 1 more year of NICs

JezR

The single rate pension is often referred to as going to be £144 but that was an illustrative figure. It was intended to be above the Pension Credit Standard Minimum Guarantee which currently is already £145.40, so a bit over the OP's expected foundation level. Whether it would be worth buying one year to close the difference of £1 or so on that basis is a judgment call.

slpj

Thanks everybody for those replies.

Sorry for being a bit slow here, but I'm still a tad confused.

As I've misunderstood what happens to my serps, it still seems to me that I should top up to 35 years.

If my serps is still going to count in some way, with a new calcualtion being applied, won't that then be added to whatever I'm entitled to under the new single tier?

The reason I'm going to get very near(or above) to the "£144", mooted as the new basic pension, is only because I have serps value. Without the Serps value included, I'll only have 32/35s of the new basic. == £131.65, or thereabouts.

So if I buy 3 more years, won't I then get 35/35*144 (the full new single tier), PLUS whatever my existing serps buys?

Or is it simply that nobody will be allowed to receive any more than the "144", or whatever figure is eventually settled on?

Sorry, I told you i was confused. .

slpj

And just to add to that last bit of my last post. --

I'm not working at the moment. But if I were to resume employment, I would be purchasing additional NI years by virture of my NI deductions.

If whilst I'm not working, there is no point in my buying my "missing" years -- (35-32=3), then surely it would seem unfair if I were to be employed, and being forced to pay the full deduction in NI, since the additional pension fraction of the NI wouldn't be required?

-- Since nobody may receive more than the new single tier pension?

Or have I now completely confused myself? lol.

jem16

slpj wrote: »

If my serps is still going to count in some way, with a new calcualtion being applied, won't that then be added to whatever I'm entitled to under the new single tier?

As the name suggests the single tier pension is just that - single tier. Nothing will be added to it.

The reason I'm going to get very near(or above) to the "£144", mooted as the new basic pension, is only because I have serps value. Without the Serps value included, I'll only have 32/35s of the new basic. == £131.65, or thereabouts.

Correct.

So if I buy 3 more years, won't I then get 35/35*144 (the full new single tier), PLUS whatever my existing serps buys?

No. SERPS will not be counted. It ceases to exist under the new rules.

Or is it simply that nobody will be allowed to receive any more than the "144", or whatever figure is eventually settled on?

If your entitlement is worked out on the new rules, you will simply receive the flat rate state pension provided you have a full 35 years and have never been contracted out. No-one will receive any more than that as that is the idea of a single tier pension.

In your case your current entitlement gives you more even although you will have less than 35 years. As it's more that is what you will be entitled to and buying extra years to make up to 35 is just a waste of money.

jem16

slpj wrote: »

If whilst I'm not working, there is no point in my buying my "missing" years -- (35-32=3), then surely it would seem unfair if I were to be employed, and being forced to pay the full deduction in NI, since the additional pension fraction of the NI wouldn't be required?

If you're working and under state pension age you don't have a choice of paying NI or not. Many people will have more contributions that are actually necessary.

NI isn't just about the state pension. It's also about entitlement to other benefits.

grey_gym_sock

as has been said, your entitlement up to 2016 (the "foundation value") is based on the higher figure of the old or new method.

on the old method, you have £110.15 basic + £34.41 SERPS/S2P = £144.56. the basic part (£110.15) doesn't increase when you go over 30 years, and you already have 32, so there is no point in making it up to 35.

on the new method, you need 35 years to get the maximum (£144 or so). buying 3 years now would at best give you a few pence more than you already have on the old method, so it's not worth it

after 2016, buying 1 extra year might be worth it, if it turns out that you're fractionally under the full single tier pension. or it might not. if you work again after 2016, you'll get there anyway.