State Pension Explanation/Help please?

Miniminxie

I have been in receipt of state pension for a few years now and have just had a letter about the increase.

BUT I don't understand how it is made up and why it differs so much from my OH's when we have both worked continuously since the age of 16. No Home Responsibility payments due or included. He is a little younger than me and our wages weren't too different. Did they change the rules between our retirement dates - seems unfair to me.

He gets: New State pension + Protected Payment = Total weekly State Pension award.

I get: basic State pension

plus Pre 97 additional State Pension

Less Contracted out Deduction

Post 97 additional State Pension

Plus a small sum for GPS.

I was a civil servant for some of my working life - Is that to do with the 'contracted out' bit?

I really don't understand the Pre and Post 97 thing either

Can anyone explain? Plus any other explanation in plain simple English please.

Woodstok2000

Do you get a civil service pension from your time with them? Generally contracted out means for certain jobs (e.g. teachers or civil service roles) you paid lower National Insurance and in return, your workplace pension (civil service pension) promised to give you that “extra” pension instead

Miniminxie

Thank you Woodstok2000 - that's part of the riddle explained. 😊

molerat

The rules changed in 2016. The pre 2016 pension is made up of lots of different parts, the basic pension increases with the triple lock each year and the additional parts with CPI. Those retiring post 2016 had all those extra bits rolled up into the new pension starting amount. If the total pension was above the full new pension anything above is the protected payment, the new pension amount increases with the triple lock and the protected payment with CPI. A protected payment means he was unlikely contracted out and paying full NI contributions which accrued additional state pension rather than, as in your case, a civil service pension.

DRS1

The New State Pension came in in 2016. It sounds like you got to SPA before then and your OH got there afterwards.

QrizB

When you say:

I have been in receipt of state pension for a few years now

... did you reach state pension age before April 2016? And did your OH reach it after then?

dunstonh

I have been in receipt of state pension for a few years now and have just had a letter about the increase.

A bit more than a few years as your breakdown indicates pre-2016 state pension. i.e. Basic, SERPS, S2P and graduated. Post 2016, it moved to the new state pension which works differently to old old collection.

I was a civil servant for some of my working life - Is that to do with the 'contracted out' bit?

Yes, that period would have meant you qualified only for the basic state pension, not SERPS or S2P.

BUT I don't understand how it is made up and why it differs so much from my OH's when we have both worked continuously since the age of 16.

For you to be the same, you would have needed identical earnings, same date of birth and been contracted in or out on identical basis.

SERPS and S2P were earnings-related segments. So, those two things along would impact on the amounts.

I really don't understand the Pre and Post 97 thing either

do you really want to understand it? - It's a complicated subject and requires a lot of text to explain it. I am sure someone here will try, but I have just ordered Chinese and don't have the time. But in short terms, rather than simple terms it is:

Pre and post‑97 benefits are different “slices” of a defined benefit (DB) / contracted‑out pension that are subject to different statutory indexation and revaluation rules, largely because of GMP up to 1997 and Section 9(2B) rights thereafter.

To then understand Pre and Post, you need to understand the different rights from each period. You also get post 88 GMP in the mix as well.

Or the really basic thing is that there are different rules for those periods.

xylophone

Plus a small sum for GPS.

Graduated Pension? If so, this indicates that you were employed for some period between 1961 and 1975 and paid contributions into this early version of additional state pension. It was intended to give contributors an earnings related component in addition to to the basic state pension.

1978 saw the introduction of SERPS. Employers/employees paid additional NI contributions to build up a pension in addition to the basic state pension.

However, in return for guaranteeing a pension that was at least as great as would be provided by SERPS (Guaranteed Minimum Pension) employers/employees could contract out of the SERPS scheme and pay lower NI contributions.

The Civil Service Pension Scheme was a contracted out Defined Benefit scheme.

As a sweetener to employers, the state guaranteed that when the state pension came into payment, ( and in the case of men especially this was often several years after the occupational scheme came into payment) it would pay inflation linked increases on that part of the occupational pension that represented the GMP.

In 1988, the government wished to save money on the inflation linking guarantee and therefore the requirement became that the Occupational Scheme would have to inflation link that part of the occupational pension representing post 88 GMP up to 3%- if inflation was over 3% the government would pay the balance.

The GMP scheme ended in 1997. From 6 April 1997, the basis for contracting out under defined benefit schemes changed. A new qualitative standard, known as the 'reference scheme test', was introduced and contracted out benefits built up after 5 April 1997 became section 9(2B) rights. No more GMP rights could be built up after 5 April 1997.

SERPS was replaced by State Second Pension in 2002. It was possible for moderate earners to accrue some S2P even if contracted out.

Contracting out ended for Defined Benefit Schemes on 5 April 2016. New State Pension was introduced 6/4/16.

When you reached State Pension Age, did you receive a letter from CSPS along the following lines

We have now received confirmation from HMRC of the amount of GMP that is payable from your 60th birthday.

The GMP elements of your pension increase in payment at different rates to your main fund pension. We therefore detail below the revised split of your pension and the future increases that you will receive from the Scheme.

Pre 1988 GMP £ xxx per annum No Increase from the Scheme. Increase may be provided by the State and paid with your State pension.

Post 1988 GMP £yyy per annum Increase in line with CPI up to a maximum of 3% each year. Any increase in excess of 3% will be provided and paid by the State

Fund Excess Pension £zzz per annum In line with the (whichever index applies to your Scheme)

Your State Pension Statement shows a calculation of your SERPS entitlement had you NOT been contracted out. (Pre 97 Additional State Pension).

From this is deducted a figure equivalent to your GMP. (Contracted Out Deduction).

What remains is what is increased each year as explained above.

It appears that your husband reached SPA on or after 6/4/16.

See

https://forums.moneysavingexpert.com/discussion/comment/78205954/#Comment_78205954

badger09

I’d like to thank @xylophone for posting this comprehensive reply.
Every year my husband & I look at similar State Pension notices, scratch our heads & file them in the ‘Too difficult’ pile.

Miniminxie

https://forums.moneysavingexpert.com/discussion/comment/81940622#Comment_81940622

I'm glad it's not just us!

To all those who have taken their valuable time to reply THANK YOU I'll study the detail later today.