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

kidmugsy

Pincher wrote: »

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

How on earth did you persuade yourself of that? If you are a male, for most of your working life the requirement for a full basic state pension was 44 years.

jamesd

Uptonspring wrote: »

I am a woman born in 1955.I have seen my state pension age rise from 60 to 65, and then 66.
I thought that having 30 years of NI contributions was enough to get me a full state pension

30 years has never been enough to get a full state pension. This is because the state pension consists of three different parts:

1. The Basic State Pension. This is the part that is based only on the number of years worked, whether contracted in or out, and on receiving certain state benefits like Child Benefit or unemployment assistance. This is the part that politicians who want the flat rate to look good compared the flat rate to because the flat rate is higher than this part of the current state pensions. There has been a cap on the number of years to get this, it used to be 39 years for women and was decreased to 30 under current rules. The flat rate cuts the number of years needed to reach this level of income to about 27 years. Years beyond that will start to accumulate more than the current BSP level of income. But that ignores part 2, which is being eliminated in the flat rate system and in practice meant hat most workers at any income level would get to the BSP level sooner than that anyway.

2. The Additional State Pension. This is the earnings-related portion accrued from SERPS then its replacement S2P. For low earners with full working lives this would add about £70-80 to the BSP, taking their total state pension under current rules to about £190. Higher earners would get more, up to about a maximum of around £250 for a lifelong high earner. This increases for each year worked without a 39, 30 or 35 year limit. It is abolished for those who retire after the flat rate is introduced, making the flat rate a cut in state pension for people who have a full working life. It is partially replaced by the ability to get more than the BSP level, up to what is expected to be about 155 a week (144 as originally announced, before inflation adjustments).

3. The Graduated Retirement Benefit. This is an earnings-related scheme that was around for a while before SERPS was introduced.

Each person under current rules gets what they are entitled to under all three added together. This is also what will be used as the Foundation Amount for the flat rate system.

To get a full state pension under current rules you would need to be earning around the start of the higher rate income tax range for a 39+ year working life and would then be entitled to about £250 a week. Because of the earnings-related part there are very few people on a full state pension but a lot on a full basic state pension level or higher.

It's really best to avoid writing about a "full state pension" because that's politician double-speak for the cut to the state pensions for workers that is being introduced with the flat rate system.

If you know anyone under 55 please be sure to tell them that it is vital for them to opt in to workplace pensions just to replace what the flat rate system is taking away from them, else they will be more poor in retirement than current pensioners. If they do that and also pay in at above the minimums they could easily end up a lot better off, depending on how much more they pay in.

jamesd

JB9302 wrote: »

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 .

That is probably right. There will be a plan announced later that will let you and others who retire under flat rate rules to buy more state pension.

You will also have the option not to claim your flat rate pension at the earliest time and it will increase by about 5% a year. That is not a particularly attractive rate and the current advice to almost always defer will probably change to usually don't defer, particularly for single males with only normal or lower life expectancy. Married females with long life expectancy and/or much younger spouses, particularly younger female spouses, will be ideal candidates to buy more.

There will also be a plan for class 3A National Insurance Contributions for those who reach state pension age. That will be set at an actuarially unfair rate that among other things will discriminate against men and those in Scotland who on average have shorter life expectancies but who will be charged the same as woman and those in parts of the country with longer life expectancy. PR double-speak for this is to call it an actuarially fair rate and ignore reality about how long people live. The politicians set the guidelines for the actuaries and can tell them to ignore those things.

bargepole

jamesd wrote: »

To get a full state pension under current rules you would need to be earning around the start of the higher rate income tax range for a 39+ year working life and would then be entitled to about £250 a week. Because of the earnings-related part there are very few people on a full state pension but a lot on a full basic state pension level or higher.

I'm just glad I was born in 1948, and paid higher rate tax for some of my working life, so am now receiving £215 a week state pension, which won't change (other than indexed increases) when the new rules come in. </smug mode off>


But Mrs C, born 1956, will have to continue working until she is 66 before receiving hers. At least I remember to set the alarm for her every morning.

jamesd

You could even defer your state pension up to once after taking it to increase that if you wanted to. Given your age, if you're in normal good health that's currently a good deal at today's 1% per five weeks of deferring, 10.4% a year increase for life.

Pincher

kidmugsy wrote: »

How on earth did you persuade yourself of that? If you are a male, for most of your working life the requirement for a full basic state pension was 44 years.

From my 2009 Pension Forecast:


"Your National Insurance (NI) contribution record up to 05 Apr 2008 shows that you have 21 qualifying years, giving you 21/30 of the full amount of Basic Pension,"



https://www.gov.uk/new-state-pension/your-national-insurance-record-and-your-state-pension


"You will need 35 qualifying years to get the new full State Pension if you don’t have a National Insurance record before 6 April 2016."


Since I DO have a NI record before 6 April 2016, and I have not been told otherwise, 30 years is what I thought it was.


Like I said, I would be surprised if that's what I actually got.


I wouldn't be surprised if they changed it to 21/60, since every one is expected to live to 100, according to optimistic lunatics.

kidmugsy

Pincher wrote: »

"You will need 35 qualifying years to get the new full State Pension if you don’t have a National Insurance record before 6 April 2016."

Dear God, what an awful piece of writing. No wonder you were misled. I suppose the civil service would be well advised to recruit more foreigners: they might be a better source of people who've been taught English properly.

jem16

Pincher wrote: »

From my 2009 Pension Forecast:


"Your National Insurance (NI) contribution record up to 05 Apr 2008 shows that you have 21 qualifying years, giving you 21/30 of the full amount of Basic Pension,"

That's strange to tell you 30 years as in 2009 the requirement was 39 years for females and 44 years for males. I suppose they based it on the new rules coming in on 6th April 2010.

"You will need 35 qualifying years to get the new full State Pension if you don’t have a National Insurance record before 6 April 2016."


Since I DO have a NI record before 6 April 2016, and I have not been told otherwise, 30 years is what I thought it was.

A bit clumsily worded but technically correct now.

Your pension entitlement will be worked out using the current rules - this will become your foundation amount.

After April 2016 your entitlement will be worked out under the new rules.

You will then get the higher of the two calculations.

michaels

jem16 wrote: »

If at April 2016, your current entitlement to basic state pension + SERPS/S2P is higher than your entitlement under the new rules, then you will get the higher of the two.

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).

So basically what I said, if I had contracted out for 10 years I would have a fund that would be worth something and would still be in a position to make enough years of contribution to get the full amount payable under the new scheme.

Pincher

kidmugsy wrote: »

Dear God, what an awful piece of writing. No wonder you were misled. I suppose the civil service would be well advised to recruit more foreigners: they might be a better source of people who've been taught English properly.

I just try to keep some proof of the NI history, and let them sort it out when I reach official retirement age, whatever that ends up being.


I worked for a year in the USA, so had to contribute to some kind of state pension plan, probably US$1,000 worth. The thing is, it was May to April, which means it's split into two US tax years, so does it count as two NI years, one, or NONE, in the UK?


Parent of a friend taught in Kenya for about 20 years, then came back to England. He just assumed it would be there when he retired. No records exist. Never got it.


Records on computers? Give me a printed statement on official water marked paper with a big rubber stamp any day.


It is non-sense, but it's rubber stamped non-sense that they can't just ignore.