The new state pension - simple question

Ant555

I am reading all sorts online to try and understand the new pension system in my own mind so a hypothetical question to help me understand and try and simplify it to basics:

If a person retires in 10 years time and at the end of 40 years of employment has, say, only those 10yrs of full NI (the rest contracted out) then will that person get around £44.40 per week of state pension (10/35ths of £155) or is there still some kind of minimum level set?

I can't seem to find the answer.

Many thanks

SnowMan

Ant555 wrote: »

I am reading all sorts online to try and understand the new pension system in my own mind so a hypothetical question to help me understand and try and simplify it to basics:

If a person retires in 10 years time and at the end of 40 years of employment has, say, only those 10yrs of full NI (the rest contracted out) then will that person get around £44.40 per week of state pension (10/35ths of £155) or is there still some kind of minimum level set?

I can't seem to find the answer.

Many thanks

You would expect that person to get £155.65pw (the full single tier pension)

You seem to be confusing paying national insurance with paying national insurance at the contracted-out rate. Paying national insurance at the contracted-out rate still counted as a Qualifying Year for basic state pension you just didn't get additional state pension.

In that example you would have expected the person to get 30 Qualifying Years up to April 2016 (unless their earnings were very low or they had multiple low paid concurrent employments).

Their starting amount at April 2016 would probably be about £119.30pw (full basic state pension) plus zero(ish) additional pension under the old rules calculation. So about £119.30pw.

And then post April 2016 you can add to that by 1/35th of the full single tier pension, about £4.45pw, for each qualifying year until you get up to the full single tier pension of £155.65pw.

The starting amount and £4.45 additions all increase subsequently (currently with the triple lock)

So 9 post April 2016 years get you up to the full single tier pension of £155.65pw (in 2016/2017 terms). As 119.30 + (9 x 4.45) > 155.65.

Ant555

You seem to be confusing paying national insurance with paying national insurance at the contracted-out rate.

Indeed I am - my initial assumptions after quite a bit of reading were that contracted out years were worth zip in the new scheme.

To my mind, your answer has taken me back full circle back to that £119 figure I keep reading about - this does seem to be the start point for many working people. If so, then that's all many of the contracted out people might have got anyway from their basic entitlement and so the new scheme says thats your start point as of 6/4/16 - but now with the possibility of increasing the state entitlement to the same level of everybody who was contracted IN.

Now I understand the crucial point that a contracted out year can still be a 'qualifying year' - i'll have to re-read much of the text!

Many Thanks

bowlhead99

To look at your question another way- you're saying that the person has 30 years already, where they've been making contributions- but we'll assume for the sake of argument, that they've all been contracted out from paying the full contribution so they don't have any Serps or state second pension coming to them, under the "old system". But they've served their time and got 30 years under their belt.

So as of this week, two calculations would be done, for each of the two systems.

One would say: 30 out of 30 years complete under the old system to qualify for a pension so you get the basic £116 or £119 or whatever it is, but you dont get an extra top up from Serps or s2p because you always chose to contract out and pay into a private or company scheme instead.

The other would say, new system you have 30/35ths of £155 earned so far, so that's £133. But we'll take off what you're deemed to have earned on the side from all that time you contracted out when all the non-contracted out petiole were paying in more contributions than you. Which is a big chunk of money so by the time we've taken it off the £133, you'd be left with well under £100.

They compare the first calc to the second and realise that the first one is the biggest, so they let you have that £116 or £119 or whatever as your " starting amount" as of 2016.

Over the next decade from 2016 to 2026 if you carry on paying NI as normal you will earn 1/35 of £155 every year, so over that decade you'll move your £119 up to the maximum cap of £155 (inflation adjusted) before it stops going up when you reach the limit.