Contradictory State Pension Estimate?

goodValue

I have just had a state pension forecast from the government Verify online system that seems to contradict a past paper forecast in two ways:
1. It says that I cannot improve my pension, although there is a year I could make a voluntary contribution for.
2. Despite having two extra qualifying years, the estimate is only £3.38 greater.


The information sent was:
First estimate:
We estimate that your State Pension will be £119.22 a week.
... shows that you have 31 qualifying years.
To work out the estimate ... we have used £151.25 a week as the full rate of the new State Pension


Second estimate:
£122.60 is the most you can get
You cannot improve your estimate any more.
33 years of full contributions

Have I misunderstood how the new pension is calculated, or is it more likely that the beta online system is in error?

p00hsticks

Q. Have you been contracted out for much of your life ?
If so, your 'starting amount' for the new State Pension (nsP) as at 6/4/16 will be based on the calculations under the old rules, where you only needed 30 years to get a full basic pension - additional years over that won't have added to it.

DWP calculate the amount you would get under both and old rules as at 6/4/16 and whichever is the higher forms your starting amount for the NsP. If you have been contracted out for a long time the deductions under the new rules means that the old rules probably worked out more favourable for you

Q. Are you reaching State Pension Age before 6/4/17 ?
This would explain why it can't be increased any further. If you have several years to go, any NI years you work or buy credits for will add around £4.45 to your weekly amount up to the £155.65 maximum.

goodValue

Thanks for the reply.
Though it doesn't state so, the estimates were under the NEW rules (using £151.25 as a basis, and increasing the estimate for years above 30).
So I was expecting an increase of about £9 to bring it up to about £128 a week.
Also, because I have less than 35 qualifying years I should be able to pay voluntary contributions to secure another qualifying year.


Do you think that this is just a mistake on the part of the beta online system?

xylophone

When do you reach State Pension Age?

The NSP is £155.65. £151.25 was an estimate made before the rate was set.

p00hsticks

goodValue wrote: »

Thanks for the reply.
Though it doesn't state so, the estimates were under the NEW rules (using £151.25 as a basis, and increasing the estimate for years above 30).
So I was expecting an increase of about £9 to bring it up to about £128 a week.
Also, because I have less than 35 qualifying years I should be able to pay voluntary contributions to secure another qualifying year.


Do you think that this is just a mistake on the part of the beta online system?

No I think it is unlikely to be a mistake in the system, especially if you are approaching state retirement age and have had some years contracted out (hence me asking those questions in my previous post, which you've not given the answers to).

I think it more likely that you are not fully appreciating how the transitional rules between the old and new state pension (nSP) work for those of us part way through our working lives.

For those starting their working lives under the nSP, its simple - 35 NI years or over gets you the full pension (currnetly £155.65), anything between 10 and 35 years gets you the corresponding proportion. Less than 10 years gets you nothing.

For those who've spent at least some of their adult lives under the old rules, it's more complicated, as they may previously have been paying different rates of NI depending on whether they were contracted in or out, and if contracted out a deduction is made in the new rules calculation to allow for the fact that people contracted out paid a lower rate of NI.

So, as I stated in my earlier post, DWP are calculating everyones pension amount under both old and new rules as at 6/4/16, and the higher of the two amounts becomes peoples 'starting amount' of nSP as at that date.

For people approaching retirement age who have previously been contracted into the SERPS/S2P , this could be more than the current maximum, and DWP will honour the higher figure, although there will be no opportunity to increase it further.

Others, like me (and I suspect you) have been contracted out into a private pension scheme for much of our lives, and paid a lower rate of NI as a result. A deduction is made to reflect this under the new rules.

Under the old rules, your pension entitlement would be the old basic amount (£119.30) as you have more than 30 NI years, plus any additional pension you have earned under SERPS/S2P. Note that as only 30 years NI was needed to qualify for the full basic amount under the old rules, any extra years over 30 can only potentially increase the additonal pension amount (assuming you are contracted in).

Under the new rules, with 33 years NI, your pension would be 33/35ths of the new £155.65 maximum, so £146.75, LESS any deduction made for years you were contracted out.

From the figure given, I suspect that, like me, your calculation under the old rules proved more favourable and so is the figure given.

Any additional NI years earned post 6/4/16 will add a simple 1/35th of the new maximum to peoples starting amount, until the maximum is reached or the person reaches Statev Pension Age, whichever is earlier

The overall effect of these transitional rules is that the number of NI years does not give a direct correlation to the amount of nSP recieved.

There will be people with less than 35 years who, because they have been contracted in, have pension forecast amounts over £155.65, and others like me who have more than 35 years but who, because they've been contracted out their entire lives still have only the basic forecast of aroiund £120.

The good news for me and people in the same position is that because I still have ten years until I reach state retirement age, by continuiong to work or by buying NI credits I can get that figure up to around £155 (by which time I'll have 45 NI years), whist still reaping the benefit of having a private pension on top and having paid a lower rate of NI in the past as a consequence.

goodValue

I mentioned the £151.25 to show that the calculation was done under the NEW rules.
Hence two extra qualifying years should have given more than £8 a week extra, and not £3.38 greater.


My State Pension age is in a few months.

goodValue

poohSticks


I think I already understood the majority of what you have said.
However, it appears I didn't understand the complexity of the transitional rules.
With the statement that the calculation was done on the basis of a rate of £151.25, I assumed that the calculation was done with the NEW rules.
This seemed to be confirmed because an increase from 31 to 33 qualifying years gave an increase in the forecast for my pension and was not limited by the 30 year cutoff.
With your statement:

The overall effect of these transitional rules is that the number of NI years does not give a direct correlation to the amount of nSP recieved.


are you saying that the reduction for contracted out years is a value that changes from year to year?
I calculated a deduction of between £14 and £15 for the first estimate, and thought it would be the same for the second estimate.
Does this mean that the voluntary contributions I made recently have been wasted?
I don't know how many years I was contracted out, but have identified about 12 years for which I may have been contracted out.
(But not all of these result in a workplace pension).
I reach pension age in a couple of months, and have the possibility of making a voluntary contribution for one more year.

p00hsticks

goodValue wrote: »

With your statement:

The overall effect of these transitional rules is that the number of NI years does not give a direct correlation to the amount of nSP recieved.

are you saying that the reduction for contracted out years is a value that changes from year to year?

No, I meant that it's not possible to make sweeping statements such as 'if you have 35 NI years you;ll get the full single tier pension' for people who are well into their working lives. some will have less years but get more, others more years and get less, depending on whether they've been contracted in or out and how much additional pension they;ve earned.

goodValue wrote: »

I calculated a deduction of between £14 and £15 for the first estimate, and thought it would be the same for the second estimate.

As far as I'm aware there's not an easy way to calculate the deduction - an earlier iteration of the Pension forecast statement included details of the calculations under both old and new rules, but this was deemed to be 'too confusing' and amended to just include the higher of the two figures, with no indication as to whether this is from the old or new rules. (From memory, the deduction I had quoted on the earlier statement version was over £80, for about 27 years contracted out)

goodValue wrote: »

Does this mean that the voluntary contributions I made recently have been wasted?

Quite possibly, I'm afraid

goodValue wrote: »

I mentioned the £151.25 to show that the calculation was done under the NEW rules.

A calculation will have been done under the new rules - but could have been discarded in favour of one under the old rules if that produced a higher figure.

goodValue wrote: »

Hence two extra qualifying years should have given more than £8 a week extra, and not £3.38 greater.

There have been other posts mentioning similar increases of a few pounds, and others more knowledgeable than I have been able to provide some explanation as to the reason - I seem to recall it may be to do with some additional pension earned under the old rules. I will come back and edit this post if I can locate any links (there is a large thread discussing the beta forecasting tool on this board which includes many examples of the forecasts people have been getting)

xylophone

http://www.dailymail.co.uk/money/pensions/article-3535618/STEVE-WEBB-Buying-ups-paying-missing-NI-boost-state-pension.html
may be worth a look.

I am wondering whether the extra £3.80 is Additional Pension for 2015-16?

goodValue

A calculation will have been done under the new rules - but could have been discarded in favour of one under the old rules if that produced a higher figure.


The first forecast said:
To work out the estimate ... we have used £151.25 a week as the full rate of the new State Pension

but mentioned nothing of the approximately £119 figure for the OLD rules. So I'm pretty certain the final figure comes from the NEW rules.


I calculated a deduction of between £14 and £15 for the first estimate, and thought it would be the same for the second estimate.


This was purely £151.25 x (31/35) - 119.22

There have been other posts mentioning similar increases of a few pounds, and others more knowledgeable than I have been able to provide some explanation as to the reason - I seem to recall it may be to do with some additional pension earned under the old rules

I'll look through other posts, but do not think it can be for any additional pension as I have not worked in the last couple of years.

goodValue

xylophone wrote: »

http://www.dailymail.co.uk/money/pensions/article-3535618/STEVE-WEBB-Buying-ups-paying-missing-NI-boost-state-pension.html
may be worth a look.

I am wondering whether the extra £3.80 is Additional Pension for 2015-16?

In recent years, I have made voluntary contributions, had one year reinstated, and have had years credited. I have not worked in the last couple of years, so don't think that the increase in estimate is due to some type of Additional Pension.