Pension Forecast question

ingleside55

My wife has just received state pension invitation and I have looked at the forecast on the gov.uk website.

The current forecast for her retirement date (5th May) is £167.91 a week which is stated as the most she can get is she contributes to 5 April 2021 .  However the estimate based on NI contributions to 5 April 2020 is £162.90.  She took VR from her job in September 2019 and has not worked since.

I have looked at her NI record and she has 46 years of full contributions, 1 year to contribute to 5 April 2021 and 2 years when she did not contribute enough.

What confuses me is with more than 35 years of full contributions why she can't get the full £175.20 a week?  She did contract out when she was employed in my company but I didn't think that this would make a difference!

The confusion is aided by the fact that I have 37 years of full contributions, was contracted out but still am projected to get the full £175.20 when I retire in 3 years!

Thanks

Dazed_and_C0nfused

She is under transitional rules so 35 years had no real relevance.

gov.uk explains it here,
https://www.gov.uk/new-state-pension/how-its-calculated

ingleside55

Dazed_and_C0nfused said:

She is under transitional rules so 35 years had no real relevance.

gov.uk explains it here,
https://www.gov.uk/new-state-pension/how-its-calculated

Hmm.  Thanks for that, have had a quick read of that and have to say it isn't a particularly clear explanation, specifically the bit about "starting amount".

I don't understand why my projection is higher.  My forecast based on NI record up to 5 April 2019 is £173.48.  That seems to suggest that my "starting amount" is higher than my wife's!  Why would this be the case given that pre 2016 she has worked or been looking after our kids for most of that time?

molerat

Differences in COPE amounts, differences in pre 2016 additional pension. There can be many reasons for the difference. Everyone's pension forecast is individual and based on a range of factors. Were you earning more than her pre 2016 ?

What are ALL of the amounts on her forecast - usually 2, 3 or 4 - some may be the same ?

xylophone

At 6/4/16,  two calculations were done for your wife (and for you).

In your wife's case, she had at least 30 years NI so qualified for at least full basic state pension and at least 35 years so that a full NSP would have been used in the new rules calculation.

Old Rules

£119.30 (full basic) + (Additional State Pension - Deduction for Contracting Out).

New Rules

£155.65 - Contracted Out Pension Equivalent.

Her starting amount was the higher of the two.

Clearly her SA was under a full NSP and she had a number of post 6/4 /16 years before she reached her State Pension Age.

She was therefore able to use contributions or credits for those years to improve her State Pension up to (but not beyond) a full NSP.

ingleside55

molerat said:

Differences in COPE amounts, differences in pre 2016 additional pension. There can be many reasons for the difference. Everyone's pension forecast is individual and based on a range of factors. Were you earning more than her pre 2016 ?

What are ALL of the amounts on her forecast - usually 2, 3 or 4 - some may be the same ?

Why would what the amount of earnings make any difference?  I didn't think that was relevant when it came to the state pension, just NI contributions.

Estimate based on your National Insurance record up to 5 April 2020
£162.90 a week

Forecast if you contribute until 5 April 2021
£167.91 a week

£167.91 is the most you can get

Looks like she will have to pay £795.60 Class 3 contribution to get that extra £5 a week as she stopped working in 2019.

xylophone

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf
may be of interest.  The "Rebate Derived Amount"  is COPE and the "Foundation Amount" is the "starting amount".

Dazed_and_C0nfused

ingleside55 said:

molerat said:

Differences in COPE amounts, differences in pre 2016 additional pension. There can be many reasons for the difference. Everyone's pension forecast is individual and based on a range of factors. Were you earning more than her pre 2016 ?

What are ALL of the amounts on her forecast - usually 2, 3 or 4 - some may be the same ?

Why would what the amount of earnings make any difference?  I didn't think that was relevant when it came to the state pension, just NI contributions.

Estimate based on your National Insurance record up to 5 April 2020
£162.90 a week

Forecast if you contribute until 5 April 2021
£167.91 a week

£167.91 is the most you can get

Looks like she will have to pay £795.60 Class 3 contribution to get that extra £5 a week as she stopped working in 2019.

Could be the best investment she ever makes.  Assuming the State Pension attracts 20% tax then after a year she has already recouped £208.

By the end of year 4 she is in profit.  And it could still be being paid, with inflation increases, 30 years later.

molerat

ingleside55 said:

Why would what the amount of earnings make any difference?  I didn't think that was relevant when it came to the state pension, just NI contributions.

Pre 2016 more earnings = more additional pension / SERPS / S2P which adds to the basic pension amount. Under the old pre 2016 scheme someone could get a basic pension, at today's rate, of £134.25 plus a maximum of £179.41 in additional pension.