State Pension - qualifying years and forecast not computing

MrsAverage

I have just been on the gov.uk site for a forecast of my state pension.
It shows I already have 43 full years of NI contributions so by my reckoning that should entitle me to the full £179.60 (at current rates) BUT it shows me an estimate of £153.81 a week and says I need to contribute for a further 6 years (until my state retirement age) to get the full amount. I thought 35 years entitles me to a full state pension
I have taken early retirement and don't plan to work or contribute any more to NI.
Is what they are showing me correct or is there something I've misunderstood?

kuratowski

It's because your pension is being calculated under "transitional rules" from when the new state pension was introduced in 2016.  This is a very common misunderstanding.

It is explained here:

https://www.which.co.uk/money/pensions-and-retirement/state-pension/your-state-pension-and-benefits/how-much-state-pension-will-i-get-aukgp6n9jkcz#headline_3

MrsAverage

But I don't understand. I reach state pension age in 6 years. By that time will I be entitled to the full state pension? If not, what will I get? Although it shows a COPE figure I don't know how that is used - in fact it clearly says it isn't used, so what and how are they calculating, and what do I believe? What figure do I use for my planning?

kuratowski

You need 6 years more NI contributions to reach the full amount.  If you work for the next 6 years, and earn at least the lower earnings limit, then you would have a full new state pension.

If you were planning to work for fewer than 6 years, then you would have less than the maximum SP.  Each year you work and pay enough NI will give you about £5.13 more state pension.  You can also pay voluntary NI contributions, which are usually regarded as good value, to top up the SP if you fall short of the full amount.

The COPE amount was used only once - when calculating your starting amount for new SP entitlement, back in 2016.  Your forecast already reflects this so you can ignore the COPE figure.

Silvertabby

If you don't intend to work again, then look at topping up your pension with voluntary Class 3 NI contributions.  Even if you are a (basic rate) taxpayer, you will get your outlay back after just 4 years.

As you have been contracted out (of SERPS/SP2)  in the past, then it's likely that only post 2016 contributions will add to your pension.  

molerat

MrsAverage said:

But I don't understand. I reach state pension age in 6 years. By that time will I be entitled to the full state pension? If not, what will I get? Although it shows a COPE figure I don't know how that is used - in fact it clearly says it isn't used, so what and how are they calculating, and what do I believe? What figure do I use for my planning?

It does not say COPE isn't used, it says it will not affect the forecast in front of you.  It has been used in calculating the starting amount at the beginning of the new pension in 2016.  35 years is only relevant to those starting out after 2016.  Your forecast shows you are £25.79 short of the full amount so getting another 5 years will take you within 14p of the full pension. Paying class 3 at around £800 for a year will pay you £267 a year in  pension so well worth doing as it pays back in around 3 years.  You need to look at your NI history to see if there are any post 2016 years part filled as they will be the ones to fill first.

xylophone

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

At 6/4/16 two calculations were done for you.

Old Rules

Full Basic of £119.30 (because you had at least 30 years NI) + (Additional State Pension - Deduction for Contracting Out)

New Rules

Full New SP of £155.65 (because you had at least 35 years NI) - Contracted Out Pension Equivalent (Rebate Derived Amount)

Your starting amount (Foundation Amount) was the higher of the two.

You are able to improve your forecast up to (but not in excess of) a full NSP by contributions or credits  for 2016/17 up to the  tax year before you reach SPA.

nigelbb

Silvertabby said:

If you don't intend to work again, then look at topping up your pension with voluntary Class 3 NI contributions.  Even if you are a (basic rate) taxpayer, you will get your outlay back after just 4 years.

As you have been contracted out (of SERPS/SP2)  in the past, then it's likely that only post 2016 contributions will add to your pension.  

Even better value than Class 3 contributions at about £800 for each added year are self-employed Class 2 contributions at about £150 for each added year. To qualify all you need does buy & sell a few items on eBay & fill in a Self Assessment tax return.

LHW99

nigelbb said:

Silvertabby said:

If you don't intend to work again, then look at topping up your pension with voluntary Class 3 NI contributions.  Even if you are a (basic rate) taxpayer, you will get your outlay back after just 4 years.

As you have been contracted out (of SERPS/SP2)  in the past, then it's likely that only post 2016 contributions will add to your pension.  

Even better value than Class 3 contributions at about £800 for each added year are self-employed Class 2 contributions at about £150 for each added year. To qualify all you need does buy & sell a few items on eBay & fill in a Self Assessment tax return.

Or if you are a grandparent and could / do help in looking after any of your grandchildren, I believe you can claim an NI credit.

jamesd

"£153.81 a week and says I need to contribute for a further 6 years (until my state retirement age)" is your true position and you should act on it. The increase is 1.35th of the full new state pension per year and sometimes the last year isn't worth paying for.

35 years is what is required for a person who made their first NI contribution in 2016 and they are a long way from state pension age. For the rest of us it's traditional rules and only chance makes it 35 years.

The big factor for you is your extensive past time in contracted out pension schemes. In those, instead of getting an earnings-related addition to your state pension you got some extra workplace pension or paid less NI. The COPE number is an estimate of the value that might be included in the workplace pension due to it being contracted out, unless you were getting less NI instead. There's a more extensive description in this post: https://forums.moneysavingexpert.com/discussion/comment/78491594/#Comment_78491594 .