Why is new state pension higher than old?

cbmaxyz

I've just read the state pension guide and have what's probably a simple question, but I can't find the answer...  Why is the new state pension so much higher than the old?  Someone who reaches pension age on 5 April 2016 gets £141 a week, someone born a day later gets £185 - and that's every week for the rest of their lives??  That's £68k difference if you live for 30 years.  What's the reason for this?

Silvertabby

The reason is that you have completely misunderstood how the two State pension schemes - and the lengthy transitional period - work.

maisie_cat

My 86 year old FIL got £250 ish a week state pension, late MIL got £220, both made up of the basic and "additional" pension earned when they worked. MIL recently died and FIL gets an additional £50 from her state pension, so now it's £300 a week.
The new slightly higher  "basic" state pension appears to be the same for those who never worked but earned credits and those who worked and were higher rate taxpayers. There is also no longer any transfer between spouses.

molerat

The old BASIC sp, the minimum you would receive with 30 year's contributions, is £141.85.  The new FULL state pension, the maximum you would receive with 35 year's contributions, is £185.15.  The maximum achievable old sp is £327.25, quite a way above the new flat rate sp.  Those falling under the transitional rules will have varying outcomes, the person retiring on 6th April 2016 may well have received no more than they would have got retiring a day earlier..

Silvertabby

molerat said:

The old BASIC sp, the minimum you would receive with 30 year's contributions, is £141.85.  The new FULL state pension, the maximum you would receive with 35 year's contributions, is £185.15.  The maximum achievable old sp is £327.25, quite a way above the new flat rate sp.  Those falling under the transitional rules will have varying outcomes, the person retiring on 6th April 2016 may well have received no more than they would have got retiring a day earlier..

Even more with deferral under the old, higher, rate of over 10% per year.

A friend's State pension is over £22K per year, due to SERPS/SP2 and 5 years deferral.  I won't repeat what he said when told that some people reckon it would have been 'fair' for ALL  pensioners to have been put on the new State pension rate from April 2016.

Nebulous2

cbmaxyz said:

I've just read the state pension guide and have what's probably a simple question, but I can't find the answer...  Why is the new state pension so much higher than the old?  Someone who reaches pension age on 5 April 2016 gets £141 a week, someone born a day later gets £185 - and that's every week for the rest of their lives??  That's £68k difference if you live for 30 years.  What's the reason for this?

Its extremely unlikely (impossible?) that someone born a day later would get £185 unless they were already entitled to it under the old system anyway.......

molerat

Nebulous2 said:

cbmaxyz said:

I've just read the state pension guide and have what's probably a simple question, but I can't find the answer...  Why is the new state pension so much higher than the old?  Someone who reaches pension age on 5 April 2016 gets £141 a week, someone born a day later gets £185 - and that's every week for the rest of their lives??  That's £68k difference if you live for 30 years.  What's the reason for this?

Its extremely unlikely (impossible?) that someone born a day later would get £185 unless they were already entitled to it under the old system anyway.......

It would be possible.  35 years of part time work / child benefit credits / self employed etc would do it - the big winners.  MrsM jumped from £119.30 + a few pence S2P to £133.50 overnight with 30 years. 

calcotti

cbmaxyz said:

 Why is the new state pension so much higher than the old? 

As others have said the situation for those retiring during the transitional period is complex. 

The long term intention is, I think in part,t hat people who get NSP will no longer qualify for Pension Credit (unless they have additional entitlement due to disability or caring responsibility or for renting their home). This compares to those who get OSP at the basic rate with no (or limited other income) are currently topped up with Pension Credit subject means testing. The intention is to reduce means testing - how much this actually reduces means testing is unclear given that many people will have additional additional entitlement.

Linton

To answer the question posed in the title… Under the old state pension as an addition to the basic state pension you would gain SERPs based on your income unless you were contracted out. For the new state pension SERPs was replaced by extra money for everyone to form the standard state pension. The change was intended to be cost-neutral.

cbmaxyz

Silvertabby said:

The reason is that you have completely misunderstood how the two State pension schemes - and the lengthy transitional period - work.

Ah OK, based on replies so far, it does sound like I've misunderstood the old one.  Don't think I've misunderstood the new one, though?  £185 per week, flat rate, going up each year by the triple lock, scaled by the number of qualifying years you have out of 35, taxable at your marginal rate.  Right?

molerat

cbmaxyz said:

Silvertabby said:

The reason is that you have completely misunderstood how the two State pension schemes - and the lengthy transitional period - work.

Ah OK, based on replies so far, it does sound like I've misunderstood the old one.  Don't think I've misunderstood the new one, though?  £185 per week, flat rate, going up each year by the triple lock, scaled by the number of qualifying years you have out of 35, taxable at your marginal rate.  Right?

The new pension is only 100% for those starting out after 2016.  Anyone with a pre 2016 history is on a transitional scheme which will need more or less than 35 years to achieve more or less than £185.15, the higher number of years not necessarily giving the higher amount.  The state pension is just taxable income.