MSE Pension Guide inaccuracies

p00hsticks

There are a number of inaccuracies in the MSE Pension Guide

https://www.moneysavingexpert.com/savings/state-pensions/

which are causing some confusion over on the Pensions part of the forum and I think could do with correcting.

Firstly, the guide says

                        The NI years needed for a full basic state pension are:

•                       Retired post-April 2016? You will need 35 years:
  

This is incorrect. If you have started your working life post-April 2016 you will need 35 years (under the current rules). But if not, then if you reach State Pension Age post-2016 then you will be under transitional rules and the number of years needed to get the full state pension will depend on your individual circumstances, which is why it is important to get a State Pension Forecast.  https://www.gov.uk/check-state-pension

the inaccurate  '35 years for a full state pension' is also repeated a bit further down.....

                    If you retired post-April 2016 to get the full (£179.60) basic state pension you need...

                       35 years to get the full state pension of £179.60 per week

In my opinion, when writing articles like this, it's more accurate to use the phrase 'reach State Pension Age.....' rather than the ambiguous 'retire...'.  (I, like many others, am retired  and am in receipt of a private pension but have not yet reached State Pension Age).

Also the term 'basic state pension' is incorrect when referring to the new State Pension introduced in April 2016 - the 'basic state pension' is the term used for what those who reached State Pension age prior to April 2016 get, and is considerably lower (currently £137.60). See https://www.gov.uk/state-pension  

Finally, the section about 'contracting out' could be worded better. It currently says

 If you are or were in a defined benefit company pension scheme you're likely to have been 'contracted out' of the additional state pension and paid a lower rate of NI contributions. This means you won't get £179.60 despite having what you thought were 35 years of NI contributions. What counts is 35 years of full contributions – not ones where you paid a lower NI rate.

To this end, the Government will deduct a sum from your new state pension. It says that although you'll get less than the full £179.60, retirees will still be paid what they would have got under the old state pension.

Whilst the first paragraph is broadly correct (although saying you 'may not get' rather than 'won't get' £179.60 would be more accurate) the second paragraph is not. The Government do not deduct a sum (the COPE amount) from your eventual State Pension - the state pension forecast itself clearly says this. The COPE amount WAS taken into account when calculating an individuals starting amount under the transitional rules when the new State Pension was introduced in April 2016, which might mean as a result that a person needs more than 35 years to reach the full State Pension amount, but it is not deducted from the eventual State Pension that people get.

I apologise if it sounds like I'm nit-picking, but I'm a regular over on the Pensions board and (after 'who will accept a DB pension transfer ?') the two most commonly asked questions / mis-conceptions are about needing 35 years to get a full State Pension and about the COPE amount being deducted from the State Pension forecast amount. Iknow it's a really complex area - I had to do a lot of reading to get on top of it - but it's really important that MSE get their facts correct and don't perpetuate these inaccuracies.

jamesd

Just in case anyone is wondering, all of your suggested corrections are accurate, 35 years mentioning being particularly troublesome because it's currently only true by chance for those reaching their state pension age. Barring changes it'll become true about thirty years from now.

Just to be clear,:

"This means you won't get £179.60 despite having what you thought were 35 years of NI contributions. What counts is 35 years of full contributions – not ones where you paid a lower NI rate."

is not true and never has been, except by chance for an individual calculation. An accurate replacement would be:

"This means you won't get £179.60 despite having 35 or more years of NI contributions. What counts is whether you've accrued enough old rules years (capped at 30 all before 2016-17) plus pre-2016 earnings-related part and 2016-onwards 1/35th accrual to get to the £179.60. Or, whether your new rules calculation gets you there. Whichever rules get you the most are used."

Of course the amount needs annual updating.

The general tone of the contracting out part seems negative and that's unjustified because those with extensive contracted out (of most of the earnings-related part) history are typically placed in an improved position by the changes, compared to those not contracted out.


Some background information on the more detailed calculations:

Old rules calculations, normally used for those with extensive contracting out:

A. up to 30 years of 1/30th of the basic state pension accrued per year whether contracted out of the earnings- related part or not.
B. and an earnings-related part with no cap on years worked. If contracted out there was no accrual for earnings until S2P replaced SERPS, then there was a low accrual rate to help low earners.
C. all accrual under old rules ceased on 5 April 2016. Subsequent years accrue at 1/35 of the single tier pension per year until the single tier cap/maximum is reached. If you were already over the cap you keep the extra.
D. There may be a couple of Pounds of Graduated Retirement Pension from the system which preceded SERPS.

New rules calculations:

E. Prior to 6 April 2016 accrual is 1/35th of the single tier state pension per year worked or credited minus the Contracted Out Pension Equivalent (COPE) adjustment for any contracted out years.
F. From 6 April 2016 accrual is 1/35th of the single tier state pension cap/maximum per year worked or credited.
G. Accrual ceases when the single tier cap/maximum is reached.

And:

H. Everyone was given the higher of their old rules or new rules calculation on 6 April 2016. All accrual since then has been at 1/35th of the single tier state pension per year worked or credited until the single tier cap/maximum is reached.
I. Those who did almost all contracted out work typically accrued between the basic state pension and the single tier cap/maximum. This is because the accrual was at 1/30th of the lower basic state pension plus only minimal earnings-related part. If retired nothing could imprive this position because only earnings-related accrual was possible after 30 years. The 2016 changes introduced a boon for people in this position: they could buy years from 2016 onwards and get an increase of 1/35th of the single tier state pension until its cap/maximum is reached. A totally new possibility to improve their position beyond the maximum allowed under the old rules. In the forum people in this position typically gripe about their forecast showing them not getting the full (meaning maximum single tier) state pension even though they worked 35 years, without realising that they are getting the maximum possible for them under the old rules and they now have a new opportunity.

MSE_Laura_F

Thanks for sending over this feedback.

I've spoken to my colleagues who look after the Pensions guides. They've told me they're in the process of updating the Pensions pdf guide and the State Pensions guide. I've made them aware of this thread so they can see all of your points.

Thanks again.

MSE Laura F

jamesd

If they fancy linking to preview versions in the pension section we can give them a thorough review before they go live.