State Pension query.

whattochoose

I reach 65 in December 2015, and have claimed my State Pension. I received a statement yesterday telling me how my pension will be made up. One part particularly interests me -

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

This amount is £12.37. Basically, from 2002 until the end of 2010 I was fully employed and "contracted out" and paying into a company pension scheme. From that date I took flexible retirement, but went back to work for the same employer, working less hours but no longer in their pension scheme, at which time I presume I then became eligible for the Additional State Pension I will be receiving soon, since I would have begun paying increased National Insurance contributions. By the way, I am still working and my gross income is approximately £14000 pa.

Please advise if you think I am correct in my assumption that the Additional State Pension payable of £12.37 weekly relates to my employment status from the end of 2010 to date.
Thank you.

xylophone

See https://en.wikipedia.org/wiki/State_Second_Pension


Before April 2002, AP was provided through the State Earnings-Related Pension Scheme, (SERPS). SERPS was a career average pension scheme, based on the band of earnings each year between a "LEL" or '"Lower Earnings Limit"' (£5304 in 2011/12) and a "UEL" or '"Upper Earnings Limit"' (£42,475 in 2011/12). Any SERPS entitlement already built up is retained and revalued each year in line with the changes in average earnings (that is, in "real" terms) until State Pension Age. It is then added to any Basic State Pension payable, and the combined amount uprated thereafter in line with the index of retail prices (RPI). S2P gives all employees earning up to £32,592 a year (in 2011/12) a larger pension than SERPS, regardless of whether they are "contracted out" or not - with most help going to those in the '"lowest"' earnings (up to £14,400 a year in 2011/12) - known as the "LET" or '"Low Earnings Threshold"'.

atush

And each year you work past april 2016 will gain you more SP.

Plus, you can contribute up to 14K PA (less BR tax) into a personal pension if you want to going forwards.

whattochoose

Thank you folks for your advice. I have to say I find that Wikipedia article a little bewildering.
I'm just going to assume the Additional State Pension I've accrued relates mostly to the years since the beginning of 2011 when I ceased to be in a company pension scheme, thereby paying increased contributions from that date.

Thanks again.

xylophone

The point is that it was possible to build up S2P under certain circumstances, even if you were contracted out.

From a House of Commons note SN00255 concerning this matter:

"A note provided by the DSS to Committee Members in February 2000 included a detailed explanation of how this would work and an example calculation.

The Explanatory Notes on the Child Support, Pensions and Social Security Act 2000 said:

As the State Second Pension is designed to boost the pension of low and
moderate earners, the Government intends to change the contracting-out
arrangements to ensure that members of contracted-out pension schemes are not better off contracting back in. Proposals on how the future contracting-out regime could be structured were the subject of a consultation exercise which ended on 14 January 2000. After giving careful consideration to all the responses, the Government
has decided to introduce measures which provide for:

 all rebates for contracting-out into a personal pension, including a personal pension based stakeholder pension, to be calculated to reflect the enhanced 3 part accrual rate in the State Second Pension;

 "rebates to continue to be calculated as they are now for all occupational pension schemes, which will not be required to change their benefits;

 people in all contracted-out pension arrangements on low earnings (up to £9,500) to get a top-up from the State Second Pension; and

 the top-up to be extended to people on moderate earnings (up to £21,600) in contracted-out occupational pension schemes.

The combination of these measures will ensure that low and moderate earners in contracted-out provision will also benefit from the extra help that the State Second Pension will give. This will simplify the choice of alternative pension vehicles available to them, without their having to contract back in to the state scheme to access that help."

whattochoose

Thank you very much Xylophone for that detailed advice, which I have found very helpful and reassuring.

patanne

If you are continuing to work after December it may be worth considering deferring your state pension.

kidmugsy

patanne wrote: »

If you are continuing to work after December it may be worth considering deferring your state pension.

True: or even if not working, if you can afford to live off savings for a year or two, it might be worth deferring.

whattochoose

No, I don't intend working for much longer, and, to be honest, I'm a little uncertain about deferring my pension.
Hypothetically, am I right in believing that If I was to defer my pension for a year it would increase by 10%? However, is it also true It would not be payable (backdated) to the date I became eligible to receive it?
If that is so it seems a no-brainer to me to start receiving it as soon as I can, although if I was to continue working I can see the benefits of deferring because my personal tax allowances would not be reduced to take account of any state pension I had received.
Thank you.

bigadaj

If you defer your state pension it get uprated, and you can take this either as an increase on your pension per week or as a lump sum. Most consider the increased pension to be a better option but it's an individual preference.

jamesd

whattochoose wrote: »

am I right in believing that If I was to defer my pension for a year it would increase by 10%?

Yes, 10.4% for those who reach their state pension age before 6 April 2016.

whattochoose wrote: »

However, is it also true It would not be payable (backdated) to the date I became eligible to receive it?
If that is so it seems a no-brainer to me to start receiving it as soon as I can

Yes, you don't get it backdated normally. That's the wrong way around. It's a no-brainer to defer and take the higher pension if your health is OK. You end up better off after around ten years, depending on your exact tax situation and how many years you defer for. Then you remain better off for the rest of your life.

There is the alternative of deferring and taking a lump sum that does have the missed payments while deferring. This is a poor deal compared to the higher income choice but it can be useful to do it when working, to move the pension payment into a tax year when you'll pay less income tax on it. A good option for a person who is still working, just much less good than the higher income for life version.