Why is new state pension higher than old?

Audaxer

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 35 years NI requirement only applies to people starting contributing after 2016. Many people with well over 40 years of full NI contributions still need to make voluntary payments to get to the £185.15 maximum

p00hsticks

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?

As others have already said, that's only for those starting working life after 2016. Under transitional rules you may end up with less than the maximum and/or need more or less than 35 years to get it. I'm currently making voluntary contributions to get up close to the maximum, for which I'll need 44 years NI (I'm going to skip the 45th year whcih would add the final 83p as it's not worth it).

xylophone

I've just read the state pension guide 

See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/181231/single-tier-pension-executive-summary.pdf

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

 At 6/4/16, two calculations were done to establish your starting amount for new state pension.

(a) Old Rules

NI years/30 (max) x £119.30 (Full Basic State Pension) + (Additional State Pension - (if applicable) Deduction for Contracting Out.

(b) New Rules

{NI years/35 (max) x £155.65 (Full NSP)} - (if applicable) Contracted Out Pension Equivalent.

Your " starting amount" was the higher of the two.

See links above.

dunstonh

Why is new state pension higher than old?

For many people, it is not.
However, I suspect you are not comparing like for like.  i.e. you are comparing just the basic state pension without Graduated, SERPS and S2P against the single state pension which brings all the bits together as one.

Any many people retiring now are still getting more than the headline rate for the single state pension due to historic entitlements.

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?

Until you get someone who does 35 years under the new state pension entitlement, then the 35 year rule doesn't apply.  Until then, everyone has transitional qualifications that may have entitlement built up when it was 40 years, 30 years and 35 years.   These old entitlements are transitioned via calculations into the single state pension entitlement.

hugheskevi

Linton said:

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.

It was cost-neutral in the short to medium term, but a significant cut in expenditure in the longer term.

Silvertabby

hugheskevi said:

Linton said:

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.

It was cost-neutral in the short to medium term, but a significant cut in expenditure in the longer term.

Under the old scheme, a non contracted out high earner could rack up over £300 per week.  Under the new scheme, high earners will be capped at £185.15 per week for the same level of NI payments.

mark5

The new state pension is about equality and giving more to those who pay in less while giving less to the ones who pay in more! 

dunstonh

mark5 said:

The new state pension is about equality and giving more to those who pay in less while giving less to the ones who pay in more! 

Which is the blueprint to how the country is run now and why its in such a mess.

arnoldy

Why is new state pension higher than old?

It is to reduce the poison of means testing. Under the old system if you did the right thing and put away a modest amount for old age you would find your self no better off, in fact usually worse off, than those on means tested pension credit. The new system is a refreshing step away from means testing to personal responsibility and reward.

hyubh

arnoldy said:

Why is new state pension higher than old?

It is to reduce the poison of means testing. Under the old system if you did the right thing and put away a modest amount for old age you would find your self no better off, in fact usually worse off, than those on means tested pension credit. The new system is a refreshing step away from means testing to personal responsibility and reward.

But it generally isn't 'higher' for the full time worker. And the weakened requirements make it more like a benefit conditional on length of residence than (as with SERPS) a sort of ersatz occupational CARE pension...