Can someone explain my state pension amount?

nigelbb

I just received a detailed breakdown of my National Insurance contributions (60 double sided A4 printed pages). Many thanks to @Marcon for the link https://www.tax.service.gov.uk/shortforms/form/DPU_SAR_NI?_ga=2.230026460.1544670040.1621021753-1315656139.1609178084

I am interested to know whether my state pension has been calculated correctly. I was contracted out most of my working life in the UK. I had a final salary pension when I worked for about 4 years for one employer but had those contributions returned under the rules at the time when I left in 1982 after less than five years (nowadays it's only less than two years & you get your contributions returned). I should have been reinstated into SERPS with a Contributions Equivalent Premium (CEP) but it's not clear to me that I was. I also had another final salary pension from working for a company 1983-1997 then another defined benefit pension from 2014-2018 when I took my state pension.

Is there any way from the figures below that I can tell whether I was reinstated into SERPS? I find it odd that the figure for Weekly Additional Pension (pre 97) is £0.00 but then there is also a Weekly Additional Pension (pre 02) of £76.62

Marcon

nigelbb said:

I just received a detailed breakdown of my National Insurance contributions (60 double sided A4 printed pages). Many thanks to @Marcon for the link https://www.tax.service.gov.uk/shortforms/form/DPU_SAR_NI?_ga=2.230026460.1544670040.1621021753-1315656139.1609178084

I am interested to know whether my state pension has been calculated correctly. I was contracted out most of my working life in the UK. I had a final salary pension when I worked for about 4 years for one employer but had those contributions returned under the rules at the time when I left in 1982 after less than five years (it's now less than two years & you get your contributions returned). I should have been reinstated into SERPS with a Contributions Equivalent Premium (CEP) but it's not clear to me that I was. I also had another final salary pension from working for a company 1983-1997 then another defined benefit pension from 2014-2018 when I took my state pension.

Is there any way from the figures below that I can tell whether I was reinstated into SERPS? I find it odd that the figure for Weekly Additional Pension (pre 97) is £0.00 but then there is also a Weekly Additional Pension (pre 02) of £76.62

If you look towards the back of the pile of paperwork you received, there's a section headed 'Scheme membership' (should come immediately after the breakdown of figures for the tax year 20/21). 

Look for the years of membership relating to the scheme where you believe you should have been reinstated in SERPS and you should find the words: 'The method of preservation associated with this scheme is CONTRIBUTIONS EQUIVALENT PREMIUM' (their capitals, I'm not shouting at you!).

xylophone

I find it odd that the figure for Weekly Additional Pension (pre 97) is £0.00 but then there is also a Weekly Additional Pension (pre 02) of £76.62

Have you seen  below (bearing in mind that  Full Basic SP from 6/4/16  (when new SP scheme introduced) was £119.30 and  Full NSP £155.65).

It explains how the  COD and "COD"  and the COPE (Rebate Derived Amount) were calculated.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

https://www.plsa.co.uk/Policy-and-Research-Defined-Benefit-GMPs  confirms your understanding of CEP and see Marcon's post  above.

You mention that you have a Defined Benefit Pension from service 1983 - 1997

Presumably you received an advice from the scheme  as here when you reached GMP age (60 F/65M)?
https://forums.moneysavingexpert.com/discussion/comment/60875313/#Comment_60875313

Your NSP calculations at 6/4/16 (Transition Arrangement)
You had 32 years NI

As far as I can see, under the Old Rules you qualified for a state pension of £119.91 - it seems to me that this is Full Basic plus a tiny amount of Grad. Either you had no SERPS/S2P or what you had was dwarfed by your COD and  "COD" - see above link.

Under the New Rules you qualified for (32/35 x  Full New of £155.65) - COPE (aka Rebate Derived Amount) - this was £64.61.

Your starting amount was the higher of the two, therefore £119.91.

By the time that you reached SPA you had two more years NI and therefore your State Pension at commencement was the Full Basic for 2018/19 (£125.95) plus two years NI (about £9.40) plus around 65p of Grad?

This  would give the £136 shown in the extract above.

Ralph_Taylor

I am eligible for state pension in a few months. In my case the pension application page on the gov web site says I have 39 years of full contributions and 7 where I did not contribute enough (took early retirement in 2015). I thought 39 years was plenty for a full pension but I am only quoted £151/week.  Is this down to being contracted out for a few years?  If I read the pages correctly they suggest I make voluntary contributions of around £800 for each of the missing years to boost my pension to £177/week.  No longer simple.  Comments welcome 

p00hsticks

Ralph_Taylor said:

 I thought 39 years was plenty for a full pension but I am only quoted £151/week.  Is this down to being contracted out for a few years? 

Yes. 

Anyone who started work prior to 2016 is currently under transitional rules and the number of years NI contributions needed will be dependant on their individual work history - the headline figure of 35 years only applies to those who started contributing after the introduction of the new State Pension (nSP) in 2016.

When the nSP was introduced, two calculations were done for each individual - peoples current entitlement under both the old and new rules - and the higher of the two amounts became your 'starting amount'. All subsequent years after 2016 add 1/35th of the nSP amount until the maximum (currently £179.60) is reached.  

Broadly speaking, under transitional rules those with a high amount of S2P/additional pension built up prior to 2016 will tend to require fewer years than those who were previosuly contracted out (and therefore paid NI at a lower rate).

If you can afford it and have time, the purchase of additional years to make up any shortfall represents very good value for money, as each extra year will add over £5 a week to your pension for life. If you are self employed you  can pay cheaper Class 2 rather than Class 3, and there are also ways to get creditted with contributions, for example if you are on certain benefits or care for grandchildren while their parents work.

Silvertabby

Ralph_Taylor said:

I am eligible for state pension in a few months. In my case the pension application page on the gov web site says I have 39 years of full contributions and 7 where I did not contribute enough (took early retirement in 2015). I thought 39 years was plenty for a full pension but I am only quoted £151/week.  Is this down to being contracted out for a few years?  If I read the pages correctly they suggest I make voluntary contributions of around £800 for each of the missing years to boost my pension to £177/week.  No longer simple.  Comments welcome 

When DWP refer to 'full' year of NI contributions, they actually mean 'full financial years' and not 'full as in not reduced due to being contracted out of SERPS/SP2'.

As p00sticks says, you pension has been calculated under the transitional terms - but you have the advantage of being young enough to top up your pension to the max.  I'm in a similar situation, and am paying 4 years of voluntary Class 3s (2 down, 2 to go).  Even as a tax payer in retirement, I'll get my investment back after just 4 years.  Bargain! (Even more so if you qualify for Class 2s or credits for grandchild care).

ADD.  99% certain that only paying for post 2016  years will add to your pension.

xylophone

See first link in post above.

https://www.dpf.org.uk/explorer/files/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf

At 6/4/16, two calculations were done for you to establish your starting amount for NSP.
Your starting amount was the higher of the two.
You say that you had 39 years in 2015 when you ceased employment (and presumably drew an occupational pension).
Therefore
£119.30 (Full Basic) + (Additional State Pension - Deduction for Contracting Out)

£155.65 (Full NSP) - COPE.

In your case, the higher amount would almost certainly have been given by the first calculation.

It has been revalued in each year post your retirement and has now reached approx £151 (about £28 short of a full NSP).

It was less than a full NSP and you had years between your retirement and SP age so could improve your starting amount up to (but not in excess of) a full NSP by contributions or credits for certain years pre your SP age.

These are likely 16/17  -  20/21 inclusive.

If you make the voluntary contributions for those years, (check before paying -  https://www.gov.uk/voluntary-national-insurance-contributions

 you can improve your pension by around £26 a week.

nigelbb

Marcon said:

nigelbb said:

I just received a detailed breakdown of my National Insurance contributions (60 double sided A4 printed pages). Many thanks to @Marcon for the link https://www.tax.service.gov.uk/shortforms/form/DPU_SAR_NI?_ga=2.230026460.1544670040.1621021753-1315656139.1609178084

I am interested to know whether my state pension has been calculated correctly. I was contracted out most of my working life in the UK. I had a final salary pension when I worked for about 4 years for one employer but had those contributions returned under the rules at the time when I left in 1982 after less than five years (it's now less than two years & you get your contributions returned). I should have been reinstated into SERPS with a Contributions Equivalent Premium (CEP) but it's not clear to me that I was. I also had another final salary pension from working for a company 1983-1997 then another defined benefit pension from 2014-2018 when I took my state pension.

Is there any way from the figures below that I can tell whether I was reinstated into SERPS? I find it odd that the figure for Weekly Additional Pension (pre 97) is £0.00 but then there is also a Weekly Additional Pension (pre 02) of £76.62

If you look towards the back of the pile of paperwork you received, there's a section headed 'Scheme membership' (should come immediately after the breakdown of figures for the tax year 20/21). 

Look for the years of membership relating to the scheme where you believe you should have been reinstated in SERPS and you should find the words: 'The method of preservation associated with this scheme is CONTRIBUTIONS EQUIVALENT PREMIUM' (their capitals, I'm not shouting at you!).

Just found it. I must have missed it first time. It looks like I was reinstated in SERPS it's just that the SERPS element of my pension is pitiful.

nigelbb

xylophone said:

I find it odd that the figure for Weekly Additional Pension (pre 97) is £0.00 but then there is also a Weekly Additional Pension (pre 02) of £76.62

Have you seen  below (bearing in mind that  Full Basic SP from 6/4/16  (when new SP scheme introduced) was £119.30 and  Full NSP £155.65).

It explains how the  COD and "COD"  and the COPE (Rebate Derived Amount) were calculated.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

https://www.plsa.co.uk/Policy-and-Research-Defined-Benefit-GMPs  confirms your understanding of CEP and see Marcon's post  above.

You mention that you have a Defined Benefit Pension from service 1983 - 1997

Presumably you received an advice from the scheme  as here when you reached GMP age (60 F/65M)?
https://forums.moneysavingexpert.com/discussion/comment/60875313/#Comment_60875313

Your NSP calculations at 6/4/16 (Transition Arrangement)
You had 32 years NI

As far as I can see, under the Old Rules you qualified for a state pension of £119.91 - it seems to me that this is Full Basic plus a tiny amount of Grad. Either you had no SERPS/S2P or what you had was dwarfed by your COD and  "COD" - see above link.

Under the New Rules you qualified for (32/35 x  Full New of £155.65) - COPE (aka Rebate Derived Amount) - this was £64.61.

Your starting amount was the higher of the two, therefore £119.91.

By the time that you reached SPA you had two more years NI and therefore your State Pension at commencement was the Full Basic for 2018/19 (£125.95) plus two years NI (about £9.40) plus around 65p of Grad?

This  would give the £136 shown in the extract above.

Thanks for the explanation. I am surprised that I only earned SERPS of 61p/week during four years of a relatively well paid job. It's earnings related but at what rate did SERPS accumulate?

xylophone

See 

https://techzone.adviserzone.com/anon/public/pensions/Tech-guide-old-state-pension#anchor_8

Calculating SERPS entitlement

kidmugsy

xylophone said:

See 

https://techzone.adviserzone.com/anon/public/pensions/Tech-guide-old-state-pension#anchor_8

Calculating SERPS entitlement

It says "There's a limit to the amount of Additional State Pension (SERPS and S2P) that any individual can get. The total of someone's own Additional State Pension and their inherited Additional State Pension for 2021/22 can't exceed £180.31 a week. The limit doesn't include any State Pension top up."

Does this calculation include the extra Additional State Pension i.e. that earned by deferral?