State Pension Question

tigerspill

Hi,

Another question in my learning and financial/retirement planning journey.
This one related how "Contracting Out" will affect my state pension.

I have been working since 1988 for the same company. I worked for 14 months for another company in 1986/87 and paid NI during that time.
I got a statement from the DWP a few months ago which said I had 30 years payments. I seem to have three added years when I was 16/17/18.
The pension statement was based on the current system of 30/30 years times £113.10/week. i.e. a full state pension.

What I am trying to understand are the implications of the new rules.
I understand that you now will need 35 years of payments for a "full" pension. If I don't have the full 35 years, will it be apportioned in exactly the same way as now - e.g. if I have 32 years payments - would I get a 32/35 fraction of whatever the weekly amount is?

Secondly, for the most of my working years (to 2009), my company was contracted out from SERPs (i think that is the correct term). I am trying to understand the implications of this on the amount I will get under the new scheme where the weekly amount is “fixed” at say £160 per week (cant quite remember the amount that is bandied around).
I am assuming that I wont get that full amount even if I have 35 years of payments.
If I have 21 years contracted out and say 14 years contracted in, using the current weekly value of £113 and the new proposed value of £160 – will I get 21/35 times £113 plus 14/35 times £160. i.e. £131 / week. Oe will it be calculated some other way?

(I am using the above numbers as illustrative).

greenglide

If you have 30 years of contributions you will get at least £113 or whatever the basic pension at 6/4/2016 - the starting amount under the old rules.

If you have been contracted out for most of your working life the new rules starting amount will be less than that.

Depending on your age any qualifying years after 6/4/2016 will get you 1/35 of the nSP amount.

tigerspill

greenglide wrote: »

If you have 30 years of contributions you will get at least £113 or whatever the basic pension at 6/4/2016 - the starting amount under the old rules.

If you have been contracted out for most of your working life the new rules starting amount will be less than that.

Depending on your age any qualifying years after 6/4/2016 will get you 1/35 of the nSP amount.

Thanks greenglide.

So the £113 (or what ever it is when I get it after indexing) is secure and unaffected by the new rules?
I am trying to understand if I could end up being worse off than under the old (current) rules?
I am 49 in a couple of weeks. on 6/4/16 I will have 32 years.

xylophone

https://www.gov.uk/new-state-pension/how-its-calculated

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

greenglide

tigerspill wrote: »

Thanks greenglide.

So the £113 (or what ever it is when I get it after indexing) is secure and unaffected by the new rules?
I am trying to understand if I could end up being worse off than under the old (current) rules?
I am 49 in a couple of weeks. on 6/4/16 I will have 32 years.

So you will probably start off with slightly over £113 and you will have another 15 years or so to increase that (1/35 per year ) until you reach the nSP full rate.

You cannot get more than this unless your starting amount under the old rules was more than this.

I assume that when you have 35 years contributions you can still earn more to cancel out the Rebate Derived Amount which is what stopped you getting a full starting amount under the new rules.

atush

What happened to your contracted out payments?

Were you in a DB pension or are they somewhere else growing nicely?

tigerspill

atush wrote: »

What happened to your contracted out payments?

Were you in a DB pension or are they somewhere else growing nicely?

I am in a DB scheme.

drumtochty

I'm afraid a bit of incorrect advice here from some posters.

At 6/4/2016 using todays rates you will get £113.10 approx in the existing pension system plus inflation . Your new system pension gross will be 32/35 of £148.40 at todays rate.

Say £136 gross a week less 21 years contracted out deduction at say £3 a week for each year contracted out. It could be as low as £1.75 a week if you earn less than £12k a year and up to £3.75 a week if you earn £40k a year.

So £136 less £63 of rebate derived amount. Approx £73 a week or do the calc yourself if your salary is not circa £30k a year.

Therefore an existing state pension of £113 a week or a new system state pension of approx £73 a week at April 2016. You get the higher amount of £113 a week.

Now as the new state pension is £148.40 at the moment on an illustrative basis you are approx £35 a week short and at todays rate the new state penion is £4.24 a week for each year worked, therefore if you work or are credited with a further 9 years national insurance credits you will reach the maximium value of the new state pension.

If you work further than that say the next 16 years you get no extra pension for the last 7 years approx.