Reduced State Pension

Borley

I retired from the Army in 2014 after 35 years service.  I have 40 years contributions to the state pension, but these years are reduced due to the fact I have an army pension. I was unaware about this until I asked for a state pension forecast.  Having researched this, I understand the logic but wish someone had told me earlier.  Presently I will get circa £140 per week instead of £170+ per week.  The gov website says that I can buy extra years to make it a full pension.  Should I do this?  It would cost over £3500 to do so. Is it worth it?  Has anyone else been faced with this dilemma?

Silvertabby

Borley said:

I retired from the Army in 2014 after 35 years service.  I have 40 years contributions to the state pension, but these years are reduced due to the fact I have an army pension. I was unaware about this until I asked for a state pension forecast.  Having researched this, I understand the logic but wish someone had told me earlier.  Presently I will get circa £140 per week instead of £170+ per week.  The gov website says that I can buy extra years to make it a full pension.  Should I do this?  It would cost over £3500 to do so. Is it worth it?  Has anyone else been faced with this dilemma?

Our State pensions haven't been reduced due to our Armed Forces pensions - we will get what we have paid for.  Forget the headline '35 years for £175 per week' - that only applies to those who started their working lives after the introduction of the single tier pension in 2016.  You and I, and many thousands like us, fall under transitional arrangements designed to ensure that we will get at least the State pension we expected under the old rules.

But we do have the advantage of being able to top that up, either by working/paying NI post 2016 (when contracting out ended) or by paying voluntary NI contributions.

I can also pay for 4 extra years.  I've already bought 2 and will buy the remaining 2 once my records have been updated with the April cost of living increases and the cost of buying 20/21 has been confirmed.

Is it worth it ?  Absolutely.  Even as a basic rate taxpayer, I'll get my investment back after just 4 years.

One thing to note is that, regardless of any earlier/cheaper gaps in your NI record, only buying years from 2016/17 onwards will increase your State pension.

Another thing - I've found that £35 per week that you seem to think that you have 'lost'.  Not only is it being paid with your Armed Forces pension, but it's been paid since 2014, thanks to contracting out.

molerat

You are not receiving a reduced pension due to being in the armed forces, your starting amount for the 2016 scheme was reduced due to you paying less NI whilst being a member of a contracted out pension scheme along with teachers, doctors, nurses, police officers and millions of others who had a defined benefit pension. In reality even your old scheme was reduced for the same reason but was never clearly separated out as it is in the current forecasts

Post in the pensions board with a full breakdown of your forecast and someone will guide you through what is possible as not all years will add to your pension amount.  Buying years is incredibly good value as they pay back in around 3 years depending on your personal tax situation - where else could you get an annuity paying 30% ?

Borley

Thank you, but I am still not sure if I should attempt to buy those extra years to increase my state pension to the limit?  Is the return on the capital worth it?

Borley

Silvertabby, Just re-read your advice and so I will now check on what I can do, post 2016.  Thank you.

davilown

Work out the maths - £35 a week is £1800 a year, if you live 10 years that’s £18,000

silverwhistle

I get my state pension next month and have done what Silvertabby has done. I had to do a bit of delving to get exact costs and returns for my particular situation but I've purchased 4 years and yes, as a standard rate taxpayer the payback is about 4 years. A far better return than the account the money came from!!