State Pension Question

A question about : State Pension Question

Folks,

I am trying to get my head around the changes in State Pension and how they affect me.

I have 31 years NI contributions. I was contracted out for 21 years.
I believe that under the existing scheme I would be on the maximum basic state pension of Ј113.10 in today's money.

I am 49 so have a long way to go to collecting.

I believe that under the new rules, my basic SP would be much lower because of the contracted out years, but that they take the higher of old and new which would be the Ј113.10 - my new Starting Amount.
Is this correct so far?

From April 2016 onwards if I continue working and paying NI, my SP will increase from the Ј113.10 (plus what ever index increase there is next year) by Ј4.24? So if I work for two years after 2016, my SP would be Ј113.10 plus 2xЈ4.24 - Ј121.58.
OR, do my additional NI contributions after 2016 go to paying for my lack of payments due to being contracted out and therefore stuck at Ј113.10 for many years.

The web page says -
If your starting amount is more than the full new State Pension
The difference between your starting amount and the full new State Pension is called your 'protected payment'.
Your protected payment is paid on top of your new State Pension and increases each year in line with inflation.
Any qualifying years you have after 5 April 2016 won't add more to your State Pension.
Does this mean my SP is capped at Ј113.10 plus indexing forever?

At April 2016, I will have paid NI contributions for 32 years. This is two years over what is needed for the old maximum SP - do these two years just get lost? or do they continue to be added on towards the new maximum of 35 years. So to get the max SP, do I need to contribute for five years after April 2016 - i.e. in my case I actually have 37 years contributions?

Does this make sense?
I am totally confused.

Best answers:

• You need 35 years under the new scheme. I retired when the rule was 30 years and have consequently been stuffed unless I start work again or can make some voluntary contributions !!
• You currently have a figure of 30 years (full) basic state pension plus any additional state pension, the "old" pension statements have this additional pension as a net figure with co deductions already taken.
  Your "new" pension figure is 31/35ths of the new pension less a co deduction.
  The starting amount will be the higher of the 2 and if lower than the "new" pension can be added to at the rate of Ј4.24? per year contributed up to the new max figure (Ј148)
  If your starting figure were to be more than the Ј148 then you will get sf-Ј148 protected and increased by inflation then added to the new maximum (Ј148) figure which will be upgraded by the triple lock each year.
• https://www.gov.uk/new-state-pension/how-its-calculated
  If your starting amount is less than the full new State Pension
  
  You may be able to get more State Pension by adding more qualifying years on your National Insurance record after 5 April 2016 (until you reach the full new State Pension amount or reach State Pension age - whichever is first).
  Each qualifying year on your National Insurance record after 5 April 2016 will add about Ј4.24 a week (which is Ј148.40 divided by 35) to your new State Pension.
  The reference to
  "Any qualifying years you have after 5 April 2016 won’t add more to your State Pension."
  comes under
  If your starting amount is more than the full new State Pension
• Do you only intend to work until you are 55?
• If not working you'll also be able to buy more years later so what will happen is that you end up with the full contracted out money plus the full flat rate. Your foundation amount will be the basic sate pension level because that'll be the higher of the old and new rules calculations. Then more years worked or bought after the flat rate comes in will get you to the maximum flat rate eventually.
  Give your age you're probably a loser under the flat rate system, ending up with less than you would get under the current one. But because you contracted out you will be less of a loser than those who didn't contract out and might even turn out to get more and not be a loser at all., particularly if you retire very early. The more years you work and the higher the pay, the greater the chance of being worse off than in the current system.
• You are 49.
  You were 16 in 1982.
  By that time SERPS had started.
  You claim to have 31 NI credits and 21 years contracted out.
  Depending on your earnings and the fact that you have a year to work until April 2016 you will have 32 years NI contributions.
  Therefore to calculate your new system state pension at todays rate of Ј148.40 a week you will get Ј136 per week gross as you are missing 3 years less 21 x anywhere between (21*Ј1.79 a week and 21 * Ј3.75) depending on your earnings when you were contracted out. That deduction if you earned less than Ј12k a year (at todays rate) will be Ј37.60 a week and if you were on about Ј40 k salary (at todays rate) your deduction will be nearer Ј78.75 a week.
  Therefore you will get between Ј57 a week and Ј98 a week from the new system pension.
  On the old system pension you will get the Ј113.10 but what I do not understand is you have 31 credits less 21 years contracted out. Therefore are you saying you did not work during these other 10 years.
  Otherwise why have you not got say 10 years plus next year so 11 x Ј2 a week for your second state pension or SERPS.
  In that case say an extra Ј22 a week in the old system.
  So a total of Ј135 a week in the old system. It could be higher.
  If that is the case, your foundation amount will be the Ј135 then a further four new system afther April 2016 will then hit the Ј148.40 per week max new system state pension..
  Therefore do you have an up to date pension statement to confirm no second state pension or SERPS.
• Low income under SERPS might explain no ASP, say just at the lower earnings limit.
  No even at the LEL you get an additional pension similar to those earning about Ј12k to Ј13k at todays rates.
  The poster has never said he has a pension statement.
  He did say
  At April 2016, I will have paid NI contributions for 32 years.
  Maybe those contracted in years were self employed so no additional pension.
• Smart pensions are a term used for salary sacrifice. Salary sacrifice is the best way to make pension contributions because there is employee and employer NI saving and the employer may share some of their NI saving with the employees.
  You'd probably have a low but non-zero amount of additional state pension entitlement. Not enough to make a difference to planning at this point, just wait and see what your foundation amounts turns out to be, knowing it'll be at or only a little above the basic state pension level.
• Depends on demand, no way to know. Given the years for which you were contracted out and in I expect most of that additional state pension to be included in your foundation amount.
• Basic State Pension will increase to just under Ј116 in April - if next September it increases by 2.5%, you are looking at around Ј119.
  A CPI increase on your AP might bring it closer to Ј12 by 2016 - it seems likely that your foundation amount will be in the region of Ј130?
  You would then be able to increase this up to the level of a full new state pension as previously discussed.
  Since the single person's Pension Credit level will be Ј151.20 in April this year and the new state pension is to at least equal PC ( which is uprated each year), it would seem that the full new state pension in 2016-17 would be at least Ј155 or thereabouts?
• Tigerspill.
  Your idea of getting a foundation amount in April 2016 is not possible at all as the system at HMRC takes a good few months to update and employers can be late to get the data into HMRC.
  Therefore a 2016 statement will be available later let's say Sep 2016 but maybe a bit earlier.
  The government when asked in the House of Lords during the committe stages of the bill for the new state pension, advised they would only send pension statements out to those who ask for it after the 2016 date.
  They consider most people will file their statement in the bin if they do not ask for it
  Now you say you have an additional state pension of Ј11.20. You say you earn Ј60k a year.
  Therefore you will get an aditional Ј3.75 per week second state pension for each of your recent years after the pension staement you have.
  So we are talking Ј113.10, + Ј11.20 plus I guess two years at Ј3.75 so Ј7.50.
  At todays pension rate that would be Ј131.80.
  Now at todays rate the new state pension is Ј148.40 it matters not whar it is in April 2016 as all the numbers we mentioned will also increase by then with inflation.
  Your shortfal will be Ј148.40 less Ј131.80 so Ј16.60.
  That is divided by todays annual increase in the new state pension of Ј4.23 per week for each year worked.
  In that case you are short of 4 years state pension to get you to whatever the Ј148.40 maximium at todays rate of the new state pension will be in due course.
  Therefor at your salary by the end of May 2019 you will have the neccassary national contributions to get the maximium state pension.
  You will not have to work until the end of March 2020.
• I've received a State Pension prediction of Ј125, as i was contracted out, it was expected. I was made redundant and took my works pension this year aged 59. I have calculated I could just about live on that without going back to work until 2021 when I will be 66 and under the current regs qualify for my State Pension. Is there any guarantee that I will receive my State Pension at 66 or could that change again before I reach my pension age of 66.
• There are never "guarantees" as far as politics goes.
  Remember there is an election due soon. When that is out of the way things should clearer.
  There are no announced plans to increase the State Pension beyond 66 before 2021 and it would be quite a challenge as the phased roll out of the new age which has been done up to now would be difficult with such a short timescale.
  But never save never!