New State Pension Enhancement?

dampsquib

monkeyspanner wrote: »

My conclusions so far are:
- Buying contributions or having auto credits will not increase the new style pension above the old style basic amount.

Unfortunately true in your case, but not so for people born slightly later!

greenglide wrote: »

Auto credits only give additional years, they do not increase Additional Pension earned by SERPS / S2P.

True, but I'm hopeful that they will improve on the April 2016 Starting Rate!

greenglide wrote: »

A qualifying year is a qualifying year

I'm hoping this will prove to be true for all aspects of the calculations.

Steve Webb made it quite clear that contributions made for years from 06/04/2016 would make a real difference to your future pension, if in the calculations, your April 2016 'Starting Amount' fell below the full rate of the Single Tier Pension (STP, or nSP, if you prefer) - each extra year adding 1/35th STP amount to your pension, until the full STP rate was reached.

In my case, I'm due to get my pension in 2017/18. My current forecast is based on 36 years contributions, though I expect it to be 39 when I get there - thanks to 3 years of Auto-Credits. Consequently, I have ample years to satisfy the new STP 35 years requirement, but my Rebate Derived Amount reduces my STP forecast to just £34 pw (due to my Contracted-Out years). Thankfully though, I will be able to rely on the safety net of the old system calculation, which gives me a Starting rate at 06/04/2016 of £114 pw.
I thought that there was now no way of improving on the £114 amount, until I heard Steve Webb speaking on Money Box, and discovered that fresh contributions from April '16 would improve on the rate of £114 - each year adding 1/35th STP amount onto the Starting Rate until the full STP rate is reached.

I'm hopeful that my Auto-Credit for 2016/17 will now add 1/35th STP amount to my current forecast of £114.

xylophone

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447195/new-state-pension--effect-of-being-contracted-out.pdf

rate of £114

Basic State Pension to which you would be entitled is currently £115.95- you would be entitled to that at least?

dampsquib

My forecast of a £114 is a few months old now, so didn't take account of rises announced since.

jamesd

monkeyspanner wrote: »

- I also understand that deferred pension enhancement after April 2016 will be much less beneficial and a quick claculation would suggest it is not worth doing as the payback period is too long.

It takes a while but it's usually by far the best way to get extra inflation-linked income that is guaranteed for life. If your health is pretty normal it pays something like one and a half to two times as much as an annuity would pay.

There's one big exception to that, people in work defined benefit pension schemes like average salary that have an optional lump sum. For these, not taking the lump sum or taking less can often produce a higher increase for the money than the 5.8% plus CPI less time cost of deferring that deferring gets.

So if a higher income does interest you it's worth saying more about your defined benefit options and we can perhaps say which way looks best.

p00hsticks

greenglide wrote: »

A qualifying year is a qualifying year whether it is before or after 5/4/2016. After that date they only increase the nSP amount by 1/35 up to the nSP maximum. Presumably if the number of years reaches 35 the nSP maximum must have been reached already as the Rebate Derived Amount is only used for the old rules amount?

Not during the transition period.
I've already got 35 qualifying years but am still ten years away from State Pension Age (2026 at the age of 66). Because I've been contracted out for most of my working line my "starting amount" for the nSP according to my latest pension statement is going to be around £120 a week (presumably calculated under the old rules).

I'm therefore hoping that any additional contributing years that I manage to chalk up between 6/4/16 and when I choose to retiure will continue to increase my starting amount by around £4.30 each year until I reach that the nSP cap. By my calculations, to reach that cap I'll need around a further 7 or 8 contributing years on top of the 35 (soon to be 36) I'll have up to 5/4/16.

greenglide

I'm therefore hoping that any additional contributing years that I manage to chalk up between 6/4/16 and when I choose to retiure will continue to increase my starting amount by around £4.30 each year until I reach that the nSP cap.

The starting amount (at 6/04/2016) always is what it says and it never increases apart from inflation (by triple lock up to the nSP amount?).
The increase of 1/35 of the standard nSP amount for each qualifying year is on top of this.

My statement that 35 years would get the full nSP amount was clearly wrong as the Rebate Derived Amount comes into the new rules calculation, not the old rules calculation. I have always known this but temporarily forgot:-(

p00hsticks

greenglide wrote: »

The starting amount (at 6/04/2016) always is what it says and it never increases apart from inflation (by triple lock up to the nSP amount?).

You're absolutely right, I should have said "increase my total nSP amount" rather than "starting aomunt".

xylophone

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

What if my foundation amount is less than the full single tier?
• Under the Government’s proposals, if your foundation amount is lower than the full single-tier pension, you can increase the value of your state pension with further qualifying years up until you reach State Pension age.
• You can do this even if you already have 35 qualifying years. This is likely to be people who were previously contracted out. Please see here.

• Each further qualifying year after 6 April 2016 will increase your foundation amount by 1/35th of the full single-tier pension (up to the maximum level).

dampsquib

I'm increasingly optimistic that my auto-credit fot 2016/17 is going to 'buy' me an extra 4 quid odd (pw) on top of my current forecast, when my pension starts in April 2017.
My forecast was depressing as the new STP didn't give me a penny extra, as the contracted-out deduction took me way below the amount calculated using the old rules.
Though I thought my (new system) quote was bad, but then a friend, who'd worked for much longer than me, was quoted £17.87 pw.
I wonder how low the amount due per the new system can go?
Has anyone with > 35 years been quoted lower than £17.87 pw?

p00hsticks

dampsquib wrote: »

I'm increasingly optimistic that my auto-credit fot 2016/17 is going to 'buy' me an extra 4 quid odd (pw) on top of my current forecast, when my pension starts in April 2017.
My forecast was depressing as the new STP didn't give me a penny extra, as the contracted-out deduction took me way below the amount calculated using the old rules.
Though I thought my (new system) quote was bad, but then a friend, who'd worked for much longer than me, was quoted £17.87 pw.
I wonder how low the amount due per the new system can go?
Has anyone with > 35 years been quoted lower than £17.87 pw?

Does it really matter ? The transition rules mean that anyone with more than 30 years NI contributions will receive at least £115.95 under the existing rules, which is the most they would have expected for the majority of their working lives anyhow , so I don't really understand why you find it "depressing".

How much or how little those contracted out would receive under the new rules is really therefore neither here nor there, and presumably now why the pension statements have been amended to show only the higher or the two amounts.

Those of us like me (and to a lesser extent you) who have been contracted out for most of our working lives but still have a few years to go to retirement find ourselves in the position where we will receive a private pension, having payed less NI, the basic state pension amount that we always expected AND have the opportunity to increase that amount by around another £40 a week. Overall, I think we come out as some of the winners