MSE News: Guest Comment: What you need to know about the new State Pension

molerat

jem16 wrote: »

The change from 60 to 65 has been known since 1995, almost 20 years so hardly a short time.

Not quite accurate as the 65, and later, date was brought forward in 2012. MrsM was due to retire at 64/11 but has been moved to 66. I was due at 65 then 66 now 65/6 so the SRA has been changed within 7 years of expected retirement age.

What I would like to know is how much I can expect to receive - using today's value is fine - sooner rather than later.

xylophone

http://www.web40571.clarahost.co.uk/statepensionage/SPA_history.htm

chris107

hugheskevi wrote: »

That is correct in terms of calculating your pension under the 2016 system on day 1, but after that more State Pension can be accrued to get to the full amount.

Take two people aged 36 in 2016 who qualified for State Pension every year from age 16 who are identical in every way, except that one was contracted in all their life whilst the other was contracted out (gloss over the fact contracting-out into a Defined Contribution scheme ended in 2012, that isn't material for the example).

In 2016, their entitlement under the new system is calculated. The contracted out person would get roughly the amount of pension they are entitled to under the existing system, around £75 per week (£113.80 times (20 qualifying years divided by the required 30 years)). The contracted-in person would get more due to being contracted-in and having additional pension, lets say they have £120 p/w.

After the 2016 system starts, it will take the contracted-in person 7 years (so age 43) until they qualify for the full amount after which they stop accruing any further pension (but still pay full National Insurance). It will take the contracted-out person 18 years (so age 54) before they cease to accrue more pension.

At retirement, they both receive the same pension, but the contracted-out person has a separate contracted-out pension pot which may well be worth several tens of thousands of pounds, and also paid lower National Insurance contributions in their lifetime due to being contracted-out. By contracting-out, they are far better off than the person who remained contracted-in.

In your own personal circumstances, you may wish to consider paying Class 2 self-employed NI contributions after you leave employment, or Class 3 voluntary contributions although they are far more expensive, if you don't qualify for the full single tier amount when you leave employment (as seems likely).

1. Can you clarify why it is 7 years and 18 years before qualifying for the full pension?
2. A question based on your last suggestion---I am 57 with state pension age of 66. I have 36 years of contracted out NICs. I am paying into a contracted out pension scheme at present. Is it worth paying class 2 self-employed NICs as well as the class 1 NICs in an attempt to qualify for some of the extra full single tier amount? (I am a landlord as well so I imagine this would match with the self-employed NICs).
Thanks

jamesd

1. The person who was contracted in will have accrued some Additional State Pension rights, so their Foundation Amount for the new system will be higher than that of the person who was contracted out. ASP is the earnings-related portion of the state pensions that is not accrued by those who are contracted out.

2. It is not worthwhile for you to buy any more NICS until after the flat rate system starts. It will not improve your situation at all because you cannot affect your Foundation Amount in any way by doing that - you already have the highest possible Basic State Pension because you have 30 years. Buying NI now will only increase the BSP amount and since you have the maximum it can't help you. Working more years after the flat rate comes in or buying extra years after your Foundation Amount is known using the scheme that it to be announced that will allow that will help you and you should wait until the details of this scheme are known.

How contracted out years are shown in a State Pension Statement depends on how the contracting out was done. If it was a personal pension or a workplace defined benefit pension the Additional State Pension amount shown on the statement will be correct, it will not have been increased during the contracted out years. If it was into a contracted out defined benefit workplace pension the statement will probably have the full ASP but a Contracted Out Deduction will need to be made to allow for the years contracted out.

You can estimate the effect of the Contracted Out Deduction using the calculation (total working years - defined contributions contracted out years) / (total working years) x Additional State Pension. Add the Basic State Pension and any Graduated Retirement Pension and you will get an estimate of your Foundation Amount.

hugheskevi

1. Can you clarify why it is 7 years and 18 years before qualifying for the full pension?

The contracted-out person starts with a Foundation Amount of £75 in 2016. The contracted-in person starts with £120 (based on the example in my previous post).

Each then starts to accrue single-tier pension at the rate of about £4.24 per week (£148.35 divided by 52, based on current Pension Credit Guarantee Component rate), per year of qualification post 2016.

It therefore takes the contracted out person 18 years (£148.35 mnus £75 divided by £4.24) to reach the full rate, and the contracted-in person 7 years (£148.35 minus £120 divided by £4.24).

2. A question based on your last suggestion---I am 57 with state pension age of 66. I have 36 years of contracted out NICs. I am paying into a contracted out pension scheme at present. Is it worth paying class 2 self-employed NICs as well as the class 1 NICs in an attempt to qualify for some of the extra full single tier amount? (I am a landlord as well so I imagine this would match with the self-employed NICs).

Not at the moment, as the Class 2 contributions (and Class 3 are the same) only count for Basic State Pension which you are already qualifying for by virtue of Class 1 contributions. But if in the future there are years where you would not accrue a qualifying year (eg due to retirement) from Class 1 contributions it is at that point that Class 2 NICs become relevant.

jem16

molerat wrote: »

Not quite accurate as the 65, and later, date was brought forward in 2012.

It was accurate with regards to the post I replied to. The change from 60 to 65 was known from 1995 so no short notice on this.

The subsequent change for the same women from 65 to 66 - and basically anyone born after 1953 - was short notice and gave few time to plan for the change.

kidmugsy

Butterfly_Brain wrote: »

...we are being forced to work longer...

No one is forcing you to work longer. Stop being silly.

kidmugsy

Uptonspring wrote: »

I thought that having 30 years of NI contributions was enough to get me a full state pension .

Not for long you didn't: that lasted only a metaphorical five minutes. For most of your working life the requirement was 39 years.

Pincher

I thought it was 30 years NI for full basic pension from 2016, too.


I made the effort to register for the Government Gateway, so I could get a Pension Forecast, which duly arrived in 2009.
Love to have another Pension Forecast, but apparently my birthday means that I don't get one, as something isn't in place yet. I am going to keep all these Forecasts, and compare it to what I finally get. I would be pretty surprised if I actually got what the Forecast said in 2009.


17 years to go, what if:


1. UKIP courts the youth vote, and they pass another "new" state pension, where the young do not pay for the old. That's a sure fire way to get 18 year olds to vote.


2. More Gulf Wars, England goes bankrupt. Islamic State has taken over ALL of Middle East, so is flush with oil money. Make a deal with Russia, IS gets Southern Europe, Russia gets North. So we now speak Russian, and they give us a pension in roubles.

JB9302

I got my forecast a couple of months ago , state pension age Jan 2017 and was told £116.60 with 42 yrs contributions ( now retired ) .
Told to ring back after Sept this yr and they may be able to update me more , its to do with how many yrs they deduct for all the contracted out yrs I think .