New state pension question

[Deleted User]

Yes, I got the booklet shown in the links above (not sure if the June 2015 or slightly later one, but I'll check). I havent read it fully yet (ashamed!) but will do so as a matter of urgency. I fully accept that I have to make the effort to understand where I stand in relation to the changes, but it's not easy.

roxy28

Deleted_User wrote: »

Yes, I got the booklet shown in the links above (not sure if the June 2015 or slightly later one, but I'll check). I havent read it fully yet (ashamed!) but will do so as a matter of urgency. I fully accept that I have to make the effort to understand where I stand in relation to the changes, but it's not easy.

Dads letter that came with the booklet gives a estimate under the new rules from 2016, no breakdown just a figure unlike last years statement.
Also on the back of the new statement letter, it tells him the figure deducted for having been contracted out, ie 'you have been deducted £40 from your pension figure for your contracted out years'.
He has 41 years NI contributions and is 60.

SnowMan

roxy28 wrote: »

Dads letter that came with the booklet gives a estimate under the new rules from 2016, no breakdown just a figure unlike last years statement.
Also on the back of the new statement letter, it tells him the figure deducted for having been contracted out, ie 'you have been deducted £40 from your pension figure for your contracted out years'.
He has 41 years NI contributions and is 60.

As I understand it, the contracted-out deduction on the state pension statements currently being sent out isn't the contracted-out deduction that is made in performing the new state scheme calculation, although it doesn't tell you that anywhere on the statement. So it is certain to cause confusion.

My best guess is that the contracted-out deduction on the statement is the deduction for contracted-out service prior to 6th April 1997, and ignores the contracted-out deduction after 1997 that forms part of the contracted-out deduction under the new scheme calculation. If so it is the contracted-out deduction that applies under the old scheme calculation in calculating the additional state pension up to 5th April 1997 (it deducts the contracted-out deduction from the additional pension you would have received pre 6th April 1997 had you contracted-in to give your additional pension pre 6th April 1997) to which additional state pension after 1997 and basic state pension (and graduated pension) is added on the old calculation.

I suspect if the new scheme is likely to be higher they may calculate the contracted-out deduction allowing for post 1997 service also, or else how could they arrive at the final state pension amount, but I really don't know.

That's obviously very complicated and impossible to deduce from what they send out. The state pension statements are a complete mess and in no way tell you how they have arrived at your single state pension amount shown on the statement. They need to show the calculation of the old and new scheme amounts, and then it would be completely clear. But they don't

Have a look at this article which seems to accord with what I have seen also.

That is why it is important to ring up the Pensions Centre and assertively insist that they tell you what the calculation is on both the old and new bases (the higher of which is the single amount shown on the statement). If you have these amounts (together with your qualifying years which are shown) then it is possible to gain a complete understanding almost immediately. Without them you've little chance of fully understanding your statement.

roxy28

SnowMan wrote: »

As I understand it, the contracted-out deduction on the state pension statements currently being sent out isn't the contracted-out deduction that is made in performing the new state scheme calculation, although it doesn't tell you that anywhere on the statement. So it is certain to cause confusion.

My best guess is that the contracted-out deduction on the statement is the deduction for contracted-out service prior to 6th April 1997, and ignores the contracted-out deduction after 1997 that forms part of the contracted-out deduction under the new scheme calculation. If so it is the contracted-out deduction that applies under the old scheme calculation in calculating the additional state pension up to 5th April 1997 (it deducts the contracted-out deduction from the additional pension you would have received pre 6th April 1997 had you contracted-in to give your additional pension pre 6th April 1997) to which additional state pension after 1997 and basic state pension (and graduated pension) is added on the old calculation.

I suspect if the new scheme is likely to be higher they may calculate the contracted-out deduction allowing for post 1997 service also, or else how could they arrive at the final state pension amount, but I really don't know.

That's obviously very complicated and impossible to deduce from what they send out. The state pension statements are a complete mess and in no way tell you how they have arrived at your single state pension amount shown on the statement. They need to show the calculation of the old and new scheme amounts, and then it would be completely clear. But they don't

Have a look at this article which seems to accord with what I have seen also.

That is why it is important to ring up the Pensions Centre and assertively insist that they tell you what the calculation is on both the old and new bases (the higher of which is the single amount shown on the statement). If you have these amounts (together with your qualifying years which are shown) then it is possible to gain a complete understanding almost immediately. Without them you've little chance of fully understanding your statement.

Thanks for that, i can see you are very clued up on things which would go over a lot of peoples heads.
Besides how they have come to the figure given, is the figure very very close to the amount as it stands if the pension was paid just after april 2016.

SnowMan

roxy28 wrote: »

Thanks for that, i can see you are very clued up on things which would go over a lot of peoples heads.
Besides how they have come to the figure given, is the figure very very close to the amount as it stands if the pension was paid just after april 2016.

The state pension statement figure you mention in post 13, should be very close to your dad's starting amount at April 2016. It could be marginally more or even less, and then there is the (triple lock) increase to basic state pension to add on to take you into 2016.

The statements (necessarily) don't take into account 2015/2016 as a potential qualifying year, but as your dad already has more than 35 years then that won't really change the figures.

If the figure on the recent statement is is less than the single tier amount, about £151.25pw, then your dad will be able to add £4.32pw for each qualifying year after April 2016 until the single tier amount of £151.25pw is reached.

If the figure on the statement is more than about £151.25 then he will keep the extra above £151.25pw, but won't be able to earn any more state pension from qualifying years after April 2016. The first £151.25pw will increase with earnings (and currently the triple lock) and the bit above £151.25pw will increase with prices (CPI) before and after SPA.

[Deleted User]

I've had a more detailed look at my recent pension statement.

First of all, it is dated 3 November 2015 and written on a pro forma with the edition date of 07/15. It is accompanied by booklet DWP042 (08/2015 edition).

It starts off: You ask for an estimate of your State Pension based on the rules of the new State Pension that starts on 6 April 2016.

It the states: We estimate that your State Pension will be £119.87 a week. This is based on your NI contribution record up to tax year 2014/15 only, which shows that you have 33 qualifying years.

It goes on: The amount of State Pension you get when you reach your State Pension age on ( giving the actual date of my 66th birthday in 2023, not repeated her for anonymity purposes) may be higher than the amount shown above (but presumably not lower, I suppose).

Over the page, it says, under heading "Adjustment because you have been contracted out of the additional State Pension": Before 6 April 2016, the SP is made up of the basic SP and the additional SP. We have adjusted your SP to take account of the time you were contracted out of the additional SP. When working out your SP estimate amount, we have made a deduction of £44.65 per week because you have been contracted out.

The addition of £44.65 to £119.87 comes to more than £151. Can I deduce from this that my higher estimated figure is NOT the new SP? I think not, but maybe someone could confirm that?

Again, thanks for all help. I'm currently dragging a letter to DWP seeking more info as to my estimates under the old and new schemes.

SnowMan

Hattie, I can't say absolutely because I can't absolutely know what the £44.65pw represents. But I am fairly confident that the following applies


OLD SCHEME BASIS
As you have the maximum 30 years required

Basic state pension of 30/30x £115.95pw = £115.95pw
plus £3.92pw of additional state pension

Totalling £119.87pw


NEW SCHEME BASIS

The contracted-out deduction is at least £44.65pw, so your new scheme calculation is no more than

33/35 x 151.25 - 44.65 =
= 142.61 - 44.65
= £97.96pw

Starting amount is maximum of £119.87 and (no more than) £97.96pw which is £119.87pw.


If you were to increase qualifying years to 35 (e.g. through 2 years voluntary contributions pre April 2016) then your calculation would be

OLD BASIS
£119.87pw still (as you already have the 30 years needed)


NEW BASIS
No more than

35/35 x 151.25 - 44.65 =
= 151.25 - 44.65
= 106.60pw

So starting amount is maximum of £119.87pw and (no more than) £106.60pw which is still £119.87pw.


SUMMARY
In summary it looks like your starting amount at April 2016 will be approximately £119.87pw (old scheme basis is higher). You cannot increase this by paying voluntary contributions for years up to 5th April 2016.

You can increase your starting amount by 1/35th of the single tier pension amount, about £4.32pw for each qualifying year you have after 6th April 2016 (either earned, credited or purchased through voluntary contributions). You either have 6 or 7 potential qualifying years after 6th April 2016, so you might be able to add up to about £30.24pw (= 7 x 4.32) to your starting amount making your total state pension about £150.11pw (119.87+ 30.24).

SnowMan

Deleted_User wrote: »

I'm currently dragging a letter to DWP seeking more info as to my estimates under the old and new schemes.

If you can get them to confirm that the contracted-out deduction for the new scheme calculation is at least £44.65pw, and hence the new basis calculation is no more than £97.96pw, then you don't really need to know the exact calculation on the new basis.

And the summary is as per my last post.

[Deleted User]

SnowMan, thank you so much for that brilliantly set out explanation, which I think I understand. The bottom line seems to be that there is no point in me buying pre-April 2016 additional years. I will, however, pursue my enquiries with DWP just to be absolutely sure. I know that I have until 2019 to buy up pre 2016 years, should it be worthwhile (which it looks like it isn't).

I think I am correct in saying that we don't yet know how much it will cost to buy additional years post 2016. I have an excellent occupational pension, so I would have to be sure that it would make economic sense to increase my SP from £119 pw to (up to) £151 pw, as the extra would be subject to basic rate tax (and not really required for a reasonable standard of living). I suppose until we know the costs involved, it's too early to make any decisions.

xylophone

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

Have a look at the above (dated July 2015) on page 4 and 5.

It seems to me that the £44.65 would be your "rebate derived amount" for the calculation on page 5.

The £119.87 is your calculation for page 4? That is to say, that had you reached SPA on 5.4.2016, that is what you would have received, the BSP for which your 33 years NI had (over) qualified you plus a small amount of S2P for which you would have qualified as a "moderate" earner between 2002 and your retirement? ( See https://en.wikipedia.org/wiki/State_Second_Pension.)

Had the new system been in operation on that date, you would have received (33/35 x £151.25) - £44.65 = £97.96?