The New State Pension System

[Wensleydale]

It seems that under new rules to be introduced in a few years time in order to receive the state pension then I must have worked for a minimum of 35 years rather than 30. As someone who joined up after University at age 21, and compulsarily retired from the RAF at age 55, then it appears that I am just over a year short. As someone who is currently in a voluntary job, and therefore not receiving payment other than my forces pension and not paying NI contributions, am I going to lose out on £144 a week when I reach age 66? (minus tax of course).

I am sure that this will affect many of us here. Am I correct in my assumptions? At a time when we are being asked by the Government to volunteer to help out in this time of fiscal poverty, am I being penalised for doing my good works?

I am aware that the retirement age for the forces will probably rise to age 60 - however, will those of us caught between rule changes miss out on our pension that we contributed towards for nearly 34 years?

I hope that I am wrong.

[lj101]

I'm guessing you will be able to make voluntary contributions if they increase the contributing years as you've mentioned;

http://www.hmrc.gov.uk/nic/ca5603.pdf

[TRX75]

You will no doubt be pleased to hear that you are wrong, Wensleydale.

See here: Women, low earners and self-employed to benefit under new "Single Tier" pension - DWP (http://www.dwp.gov.uk/newsroom/press-releases/2013/jan-2013/dwp003-13.shtml) which includes:

Key features of the Single Tier pension:

35 qualifying years to receive the full amount

A minimum number of qualifying years (up to 10 years) to get any single tier If you have 34 qualifying years you will receive 34/35ths of £144.

Edit (with apologies): this last sentence is incorrect - see my further post below regarding the transitional arrangements. You will receive the full pension.

[Tableview]

It seems that these are only proposals although from what I'm hearing they will be adopted.

Assuming they will be adopted, is the following correct in the context of someone who has already paid the currently required 30 years and is therefore entitled to the full state pension under the current legislation?


As you may be aware, there are currently changes being planned to the UK state pension scheme. One of the changes is increasing the number if qualifying years from 30 to 35.
This means effective 2017, if you have only paid 30 years, you will only have the right to 30/35 of the state pension. I'm not sure if we can buy additional years to bring it back up to the minimum required.

[LFFC]

A slightly more complicated question relates to the National Insurance "contracted out" issue.

There was a thread running here a couple of months ago regarding how military pensions are tampered with when you reach retirement age because we were "contracted out" of the state second pension. Will these changes mean that the tampering stops, or a I fear, get worse? :confused:

This is the thread: Service Pension Reduction (http://www.pprune.org/military-aircrew/458763-service-pension-reduction.html#post6601308)

[TRX75]

Tableview - no I don't believe that is correct. The press release I linked above also says:
All state pension rights accrued under the old system will be recognised, so nobody will lose out on any pension they have earned.In my view, it therefore follows that anyone who has the currently required 30 years by 2017 will receive the full Single Tier pension.


The White Paper itself (see here: http://www.dwp.gov.uk/docs/single-tier-pension.pdf) gives more detail at Annex 3 on page 91:
12. Those whose National Insurance record under the current system would have a value at the point of implementation of more than the full single-tier pension will receive both a full single-tier pension and a ‘protected payment’ (an additional payment protected against price inflation) to recognise their higher entitlement.On the matter of voluntary contributions, the White paper says on page 92:
21. Under the current system, those who have gaps in their National Insurance records, for example, as a result of time spent in full-time education, are able to ‘top up’ their records by paying voluntary National Insurance contributions. These do not count towards the additional State Pension.
22. The Government intends to retain voluntary National Insurance contributions. As is currently the case, the cost of those contributions will be kept under review.

[F.O.D]

We need AL R for an expert opinion,

but I waded through the white paper and in the small print, there appears to be a sting in the tail for Public Sector employees who were contracted out. Even if you have worked in the RAF for 35 years, you will not get the full £144 pension. You will be entitled to the greater of your current state pension entitlement (£107) or £144 minus a "rebate derived amount." Steve Webb during questions in Parliament gave the example of a teacher who had always been contracted out. The NI rebate derived deduction will take the amount back down to £107! However, once you pay full contracted in NI contributions, you will earn £4.11 extra for each year's post implementation NI contribution. So after 10 years or so under the new scheme you will get £144, but those who reach state pension age soon after implementation will get the existing pension value

I hope I am wrong but that is how I understand the white paper

Regards

F.O.D

[Onceapilot]

Don't get excited, it will be means tested by whatever government we have in 2020 and anyone on a decent public pension will be getting nothing. They are just making it look sweet for a few years before they move the goalposts again.

OAP

[Party Animal]

And of course on 'Question Time' last week, the Tory blonde celebrity jungle MP mentioned plans for those 'rich/wealthy' pensioners to lose their state pensions altogether. When asked to define rich, she replied that any pensioner with a pensional income of £25k or above, would fall into the bracket...

Watch this space.

[Tableview]

Will the means test be on income only, or on total assets. I realise of course that some assets produce income (or at least, are meant to ..... I wish some of mine did!)

[Melchett01]

And of course on 'Question Time' last week, the Tory blonde celebrity jungle MP mentioned plans for those 'rich/wealthy' pensioners to lose their state pensions altogether. When asked to define rich, she replied that any pensioner with a pensional income of £25k or above, would fall into the bracket...

Watch this space.

Sounds about right. The Government - both this one and previous - make me unspeakably angry with their totally incoherent and disjointed approach to pensions. Actually, anything to do with money. On the one hand they tell us we need to save more for the future, but at the same time their actions do nothing to encourage people. It's the same for the economy in the round - I am just waiting to be told that it's our fault that all these big high street names going into administration because we aren't spending enough. That our income is under constant seige and attack from a pernicious combination of high inflation, exorbitant taxes which are growing at a frightening rate and a political class who think our money is actually their money, all of which combine to reduce spending power seems to have slipped their attention.

So, in preparation for the future and the likely chance of the government screwing me over on the tax and pensions front, I am doing everything I can to actively avoid having to rely on taxable income streams in retirement. ISAs, for now until they move the goal posts, would seem to be the only realistic solution for the average man in the street as they are by and large understandable and importantly provide an income stream that doesn't appear on any tax returns and isn't considered for any other payments, benefits or credits.

All in all, I am deeply deeply concerned by the attitude of our political classes. Their definition of wealthy is so far off the mark that all it does is to demonstrate how out of touch they are. In fact, by Norris' own admission, if 25K is wealthy, then it makes their demands for a 32% payrise on top of their existing 65k basic look like theft. We might all laugh at the fruit loop survivalists you see preparing for the end of the world by hoarding tins of food and water, but frankly becoming a financial survivalist seems to be the only way to stop you ending up being taxed to death and totally reliant on crumbs from the state in your old age.

Or maybe a total subjugation of the population through financial dependency on the government is what the political classes are after.

[cuefaye]

They are just making it look sweet for a few years before they move the
goalposts again

OAP - that can't be true, it smacks of a policy!.

[Al R]

Simplification? The transitional rules alone, to get there make your eyes water.

The state isn't doing this out of the goodness of its own heart; of course it isn’t. The self-employed with no S2P/SERPS record are going to win (not really applicable here) so it should appeal to the Tory heartland. A mum home-keeper (other genders are available!), currently in her 40s/50s who earned taxable income before raising a child up to the age of 12 should benefit (lets not forget the new age at which state pension can be taken) - although you have to put in 10 qualifying years to receive anything AT ALL now.

Those who have spent time out of the workforce, such as mothers and carers of those with disabilities, will also probably benefit in the short-term – but in respect of the younger in the workforce, those currently Flt Lts/Sqn Ldrs? Well, the state will start paying out less in overall benefits in 2047, so it stands to reason people retiring after then, are going to lose out.. in other words, those born after 1980 or so.. the so-called Millennium generation.

From 2017, the state is scrapping contracting out for final salary schemes which, as members of AFPS, you are anyway. In other words, you pay basic Class One National Insurance Contributions (NIC) to entitle you to the basic state pension. There are two rates of Class One NIC: the ‘contracted in’ and ‘contracted out’ rate. You pay the lower ‘contracted out’ rate and you accrue credits towards the Basic State Pension only; those who pay the higher ‘contracted in’ rate earn credits not only towards a Basic State Pension, but also towards an Additional State Pension, currently known as the State Second Pension. It is this benefit which is being scrapped.

However, so that you get more than your basic state pension entitlement, you will have had contributions made on your behalf into (all/some of..) Graduated Pension Scheme, SERPS or S2P. This means you can pay the lower contracted out rate, so only have credits towards a Basic State Pension, and nothing in the way of State Second Pension entitlement. However, AFPS gets a rebate from the state into in recognition of the fact that it will not have to bear the cost of the additional State Second Pension. Yes, AFPS is unfunded, but the rebate is still a ‘paper’ credit but in order for AFPS to continue to be trusted enough by the state to be able to contract out, it must be capable of paying pensions to members that are at least equal to the Guaranteed Minimum Pension rates which loosely speaking, must be 'broadly equivalent' to the amount the member would have received had they not been contracted out.

But, if you accrued protected rights will cease to have any special significance, and will be no different from any other retirement benefits. The Government ‘recognises’ (which is nice) that ending contracting out will have a ‘range of implications’ for employers, employees and schemes such as AFPS. For the MoD, the end of contracting out will have cost implications, the largest of which will be the need to start paying the standard rate of Class One NIC.

This would ordinarily mean an increase for the employer, for each contracted-out employee of 3.4% or so of relevant earnings, between the lower earnings limit (£5,564) and the upper accrual point (£40,040). Reading the DWP paper last night, many employers are going to be free to do this without trustee consent, so it’s a fair bet to assume that the cost has been padded into TACOS and AFPS revised terms.. watch and shoot for that to prove too expensive again in 5-7 years or so? It could be that though, that AFPS does become a smaller component in a military retiree's pension, and the slack is taken over by the state. Worrying in itself?

So, contracted-out employees will be brought fully back into the state system and should/could start to pay full National Insurance contributions – an increase of about 1.4% of relevant earnings. However, around 90% of those reaching State Pension age in the first two decades after implementation will gain enough extra state pension over retirement to offset both the increased National Insurance contributions they will pay over the rest of their working lives and any potential adjustments to their occupational pension.

The state is making noises about ‘foundation’ amounts being ring-fenced to secure outcomes. Under those eye watering transition rules, those reaching their State Pension age after the implementation of this new single-tier pension will fall into four distinct groups;

Individuals with a foundation amount which is equal to the full level of the single-tier pension. These are likely to be people who have the necessary 35 qualifying years, little additional State Pension and have not been contracted out.
Individuals with a foundation amount which is less than the full level of the single-tier pension. These are likely to be younger people, with fewer qualifying years, or older people who have spent many years contracted out of the additional State Pension and not in a defined benefit scheme such as AFPS. These people will be able to increase their single-tier pension up to the full level, at the rate of 1/35th of the full rate (£4.11 to the nearest penny) for each additional qualifying year they gain before reaching their State Pension age.
Individuals with a foundation amount which is more than the full level of the single-tier pension. These are likely to be older people with many qualifying years, and who have not spent significant periods contracted out of the additional State Pension. These people will receive the difference between their foundation amount and the full single-tier amount as an extra payment on top of the full single-tier weekly amount.
Individuals with no pre-implementation National Insurance record. The simpler and easier to understand single-tier system will give them long term clarity of outcome. They will also be supported to save into a workplace pension scheme through automatic enrolment and the policy measures set out in the Government’s ‘Reinvigorating Workplace Pensions’ document throughout all of their working lives.

Finally, I am supposed to provide advice based on as full an understanding as possible of all relevant legislation pertinent at the time that it's given and not predicated upon future change and/or speculation. The problem is, the state doesn’t even know – the reason that this announcement was delayed was because gorgeous George and IDS (I have a lot of time for him) were having a bun-fight about affordability. If the new state benefit is going to be linked to life expectancy, with people getting state pension for the same proportion of their lives as they do now (hands up if you know what proportion of your life you get state pension now, let alone in the future?).

Whatever you do, do something, go and see the bank, your IFA, have a chat with a mate you trust.. but do something – the writing (if you ever needed to be reminded) IS on the wall. Whether its starting an additional personal pension for your partner and/or yourself, checking out that your money and portfolio are well suited for the future and working well, that you are properly protected should your savings come under threat they are going to be secure, whether it involves hitting the person in the bank into getting you the best rate.. do something. Especially if you're in your 20s, 30s and early 40s if you haven't started planning properly. I joined up 30 years ago this week. I didn't have a clue about wealthcare and it took me a while to latch on. But I am of an age where I had the luxury of a decent pension and not having to pay out for baby boomers as long as the Millennium Generation has to. Those 20 years younger than me don't have that luxury, so do something.

Right, Cranwell and Waddington this week so fingers crossed for clear roads. If anyone has any questions or worries, please just drop me a line. If I can, I'm happy to help.

[Al R]

Melchett,

Or maybe a total subjugation of the population through financial dependency on the government is what the political classes are after.

I wouldn't disagree out of hand with that; if the demands placed upon AFPS and other state defined benefit schemes become less and less, and if the slack is going to be taken over by the state, then we are all going to become dependent more and more on the state, directly.

So, in preparation for the future and the likely chance of the government screwing me over on the tax and pensions front, I am doing everything I can to actively avoid having to rely on taxable income streams in retirement. ISAs, for now until they move the goal posts, would seem to be the only realistic solution for the average man in the street as they are by and large understandable and importantly provide an income stream that doesn't appear on any tax returns and isn't considered for any other payments, benefits or credits.

An ISA absolutely, yes. But not dismissing out of hand either, the potential downsides of other wrappers such as pensions, on/offshore Bonds etc just in case the state moves the goalposts. The thing to remember is that the state has been 'tinkering' as long as anyone can remember. All things in moderation, all things in proportion. An financial plan should be like a battle-group.. with good allround defence and a good offensive capability.

As to Question Time, I think I have tickets for the show this Thursday in Lincoln. Look out for the grumpy old man.

[Bob Viking]

Just a quick question on a related matter. If an individual chose to opt out of child benefit (I didn't) what happens to their 'stay at home' spouse with regard to national insurance contributions? I was under the impression that, whilst in receipt of child benefit, an individual in such a situation would have their NI paid by the government to go towards their state pension. If I opt out does that mean my wife loses out on her state pension? Or have I missed something?!
BV😳

[Al R]

Bob, it shouldn't do - child benefit usually goes to 'mum' anyway and individuals are treated as such for taxation purposes anyway. Anyone aged over 16 gets their NIC paid if they raise a child (up to the age of 12) and a person also gets NIC paid on their behalf if their spouse or civil partner is ".. a member of Her Majesty's forces and you are accompanying them on an assignment outside the UK".

HM Revenue & Customs: National Insurance credits (http://www.hmrc.gov.uk/ni/intro/credits.htm)

Not my specialist area though, but I hope that helps.

[Melchett01]

Al,

Will do. Please feel free to ask about government subjugation of the masses through enforced poverty by means of excessive taxation and a total disincentivization to save for old age! I would be delighted to hear their reply. (Actually I wouldn't, it will only make me mad - I'd be delighted to see them up against a wall through a SUSAT!)

[F.O.D]

Al

I looked at the reference you gave for NI credits for spouses of servicemen. Unfortunately, this only applies after 2010. My wife followed me around the World on RAF postings for much of the past 30 years, I got her up to 30 years NI by buying some extra years. Now retrospectively, she has gone from being entitled to a full basic pension to having only 30/35ths of a pension when she reaches state pension age soon after 2017.

I have re-read the White paper and wondered if you can spread any more light on the "rebate derived amount" that they plan to reduce the entitlement of contracted out employees like service personnel?

I feel an angry e-mail to my MP coming on!!!

Regards

F.O.D

[Onceapilot]

I sympathise FOD, many of us are being shafted by these changes, not least the Ladies getting put back from age 60 to...65,66,67?
As I said before, these changes are to make the "new" system look reasonable so that we accept the worse bits then, after the dust settles and everyone forgets the old way, they WILL introduce means testing to cut out anyone who has accrued a decent pension and, IMO, that will include private pensions/income.
The next hit will be health care..."pay what you are able" in 2015!

OAP

[Tourist]

Guys.
I speak as one of the soon to be fisted re my pension.

Surely you can all do basic maths and see that whoever is in power they have to reduce the pensions bill or the country goes bust.

The system does not work for an aging/living unwell for a long time population.

I am planning on getting no state pension whatsoever.

If I can afford without, then why should I get money from those who cannot?

Just because some idiots who cannot do maths decades ago told everybody that the future was rosy for everybody re nhs and pensions does not mean it is true.

[Bob Viking]

Whilst we're talking about idiots who can't do maths what about the many people who completely neglected to plan for retirement? It's not like they couldn't have seen it coming. We all get 65 years warning. Something for nothing again in my opinion.
Before I get flamed for daring to have an opinion let me add that I understand genuine cases of low paid workers who were unable to save more. However, I am getting sick and tired of being called rich and seeing money that millions before me have collected being slowly eroded.
Standing by to be accused of being a fascist.
BV

[Melchett01]

BZ BV!

Definitely not a fascist, possibly just brought up, as I was, to believe if you want something you work / save for it and once it's gone it's gone. I too find it incredibly frustrating to be told by out of touch and seemingly untouchable politicians that because I had the temerity to work hard at school, get some qualifications and get a decent job at which I work hard, I am must be privileged, rich and ripe for mugging at every turn.

You are not a fascist, just echoing the voice of the silent majority who are being done over from both ends simultaneously and getting royally sick of being told we've all got to 'do our bit'. :mad:

[VinRouge]

There is a solution. No operations or life prolonging treatment on the NHS past pensionable age. "Rationed treatment" in other words.

Harsh but would save the state a fortune. The NHS operates far in excess of its original remit and is the single biggest state expenditure,

[thing]

Just as an aside, I've often wondered whether the pensions crisis may be a blip. The people who are elderley now, say anyone 75 years and older are probably the healthiest generation we've ever had; IE they were brought up during the war years on rationing. How many of todays 30 to 50 years olds will be alive in 30 years time? Not so many I would imagine.

I'm not a medical person but looking at the state of some young people today and they way they live makes me wonder if they'll even reach pension age.

[LFFC]

Soldiers to pay more tax in pension reform (http://www.telegraph.co.uk/finance/personalfinance/pensions/9815054/Soldiers-to-pay-more-tax-in-pension-reform.html)

A private soldier earning £17,000 a year will have to pay an extra £162 in National Insurance contributions, while a sergeant on £30,000 will have to pay £341 more a year, research by the House of Commons library has found.

[The Old Fat One]

I am planning on getting no state pension whatsoever.

Whilst I agree with sentiment expressed, ie make sure you've got the bases covered (indeed, just hauled my carcass out of retirement to throw some more moolah into the fatboy's wonga pile) I think doomsday scenarios are never really worthwhile.

A developed country like ours, could not remove the state pension scheme, without total economic and social disorder. The macro economic consequences would wipeout our service economy and thow millions into the social care system which is vastly more expensive anyway.

Not saying there is not a tiny wee chance such a fate awaits us, but if does, then your savings plan, a, b & c will be **** all use, because the economy and civil society will all have gone west and all our prosperity with it.

In fact, if you believe this is at all likely, you should be saving bugger all. You should be out drinking and whoring yourself to death.

[Biggus]

.....or buying a cabin up in the hills, lots of tins of beans, goats and chickens, start a vegetable plot, maybe a small windmill turbine for power, etc, etc...



Thing,

As an aside, I think it is now a stated fact that the current generation (what exactly is the "current generation, kids born today? Kids under 16? Everyone under 30?) for the first time ever actually has a lower life expectancy than the generation that proceeded it - thanks largely to the increase in obesity and type 2 diabetes!

[Al R]

Having said that fatboy, the 5 yearly reviews and linking the state pension to life expectancy will almost certainly see it creep up to 70 sooner rather than later.

[Tinribs]

Some assumptions here on a complex subject

I retired last year after working from 1964 ie 46 years but I do not get a full state pension because the RAF was opted out of SERPS and thus I am docked £96 per week.

There is iniquity here, the figures assumed the RAF service was pensionable but of course officer service prior to age 21 does not count for pension.

It is often stated that there was an opportunity to make extra payments this is not the case for serviceman

[F.O.D]

Tinribs

I am not sure what you mean when you say you are not getting a full state pension After 40+ years of RAF service. Surely you should be getting the basic state pension in full - £107 per week plus possibly a little bit of SERPS/S2P?

The contracted in/out scam starts after the single tier pension is introduced in 2017. For service personnel after 2017, if they have been contracted out all their working career, and have paid NI for 35 years, they will get £144 minus a "rebate derived amount" = £107. For every full year of NI after 2017, they will get an extra £4.11.

Al R. Please correct me if I am wrong.

[Al R]

DWP determined the level of rebates for contracted-out pension schemes as 4.8% (made up as 3.4% for employers and 1.4% for employees). Before April 12, it was 5.3% (3.7% for employers and 1.6% for employees). Broadly, the new system is good. We don’t know what or how the rebate derived amount is going to be calculated yet, but if, and as you say, an extra year of NIC under the new state pension is going to be £4.11 a week we cansafely assume that the deduction will be the same.

Let us assume that you have served 28 years contracted out with AFPS and have one year’s pre mil service in a contracted in scheme somewhere. In 2017, when you may have survived 33 years and are on the cusp of retirement with 2 years left to push for the new full state pension, you will be awarded a foundation amount which could loosely be calculated as follows: (33/35 x 144) minus that rebate.

So, your foundation amount will be (the estimated) £135.77 minus £115.08 (i.e. 28 x £4.11) = £20.69. But, to make sure you won’t be worse off under the new system there is also a safety net. So, if you had 30 years NIC at the time of the change, your old pension is going to be £107.45 (the current basic state pension). So this becomes your 'foundation amount'. If you have also been contracted out for 28 years, you have SERPS/S2P equivalent embedded in your final salary AFPS benefits, worth say £100 or so per week.

No real unfairness in that, really. Where the problem arises is if you want to work for BAe or an airline which has a defined contribution scheme and youare then allowed to build up another £37 of state pension at a rate of £4.11 for every extra year of NI credit after 2017 – it will take you under ten years to achieve that, which, at 55, many people can easily do. Being objective, the unfairness then arises for the younger servicemen who will never be contracted out. They get £144 or so and won’t be able to build up any more state pension.

Can't sleep? Here.. try this.

http://www.gad.gov.uk/Documents/Pensions%20Policy%20&%20Regulation/Rebate_Consultation/Consultation_by_GAD-Review_of_contracted-out_rebates_2012-2017.pdf

[Erwin Schroedinger]

We don’t know what or how the rebate derived amount is going to be calculated yet, but if, and as you say, an extra year of NIC under the new state pension is going to be £4.11 a week we cansafely assume that the deduction will be the same.

Don't see how you arrive at that. The contracted out payments are less than contracted in, but they aren't 100% less (i.e. zero). The £4.11 is simply £144/35. If contracted out is, say, 5% less than contracted in, you should be credited with 5% fewer years of contributions.

On the other hand, I am wondering why a precise calculation of the 'rebate derived amount' isn't in the White Paper. Hmmmmm.....:suspect:

[Erwin Schroedinger]

From HMRC website:

If you contract out and pay into an occupational pension scheme

If you contract out because you're a member of your employer's occupational pension scheme:

* you and your employer will pay reduced National Insurance contributions
* your employer will pay at least the amount saved in contributions into the scheme
* HM Revenue & Customs (HMRC) will pay an additional rebate into the scheme based on your age and your earnings if your scheme is a 'contracted-out money purchase scheme'

A contracted-out money purchase scheme is one where your pension depends on how much has been paid in and on the value of your fund when you retire.

You'll pay a reduced National Insurance contributions rate on your earnings up to the 'upper accrual point'. This is 10.6 per cent instead of the standard rate of 12 per cent (2012-13 tax year rates).

So if you've been contracted out for all 35 qualifying years, you will have contributed in full for the equivalent of (35 x 10.6 / 12) = 30.92 years, giving you a single tier pension of (144 x 30.92 / 35) = £127.20.

Presumably, if you are instead contracted out for (35 x 144 / 127.20) = 39.62 years, you will arrive back at the single-tier maximum of £144.

[Just This Once...]

Don't a bunch of us also pay 1% NI on everything earned i.e. without an upper earnings cap; what happens to this 'contribution'?

[Just This Once...]

Being that time of the year I have representative numbers to hand.

My 'contracted out' NI contributions for the year are roughly:

Pers NI = £4.5k
Employers NI = £9k
Total = £13.5k

For someone on £30k, but not contracted out:

Pers NI = £2.7k
Employers NI = £3.1k
Total = £5.8k

Is it really the case that person with the lower personal and employers NI contributions will receive more state pension?

[Al R]

Because the new flat rate pension was supposed to help those who traditionally didn’t have independent pension savings, such as (invariably) wives and the self employed.

Interestingly, just the other day, the Work and Pension Committee urged the government not to cut the link between spouses' state pensions and to allow women who are 15 years away from retirement to continue linking their state pension to their husband’s National Insurance Contributions (NICs) when the new scheme starts. Previously, wives relied on a husband’s income, and until 1977 married women who were employed paid reduced NIC (‘married women’s stamp’).

In order to get round having a reduced state pension, women were also entitled to use their husband’s NICs instead of their own. However, the option for a woman to align her pension to a husband’s NICs will be lost and she will now once again, receive the reduced version. There are only around 30,000 women who will be adversely affected by this change but this is the committee statement that I question; ‘Some women did not build up their own NI record because they had an expectation that they would be able to rely on their husband’s contributions to give them entitlement to a basic state pension’.

If the Work and Pension Committee is to successfully dodge the accusation that it is cherry picking the juiciest bits of gender equality, it needs to remember that hundreds of thousands of people in various public sector schemes also ‘had an expectation’. On another note, if you have been affected by the legislation which sees you losing child benefit because you earn too much, it might be worth reading this if you decide to turn down NIC instead of not paying a tax bill.

http://www.hmrc.gov.uk/childbenefit/start/claiming/protect-pension.htm (http://www.hmrc.gov.uk/childbenefit/start/claiming/protect-pension.htm)

[F.O.D]

For those who were interested, there is recent briefing note on the DWP website http://www.dwp.gov.uk/docs/single-tier-pension-transition-technical-note.pdf

This explains how the single tier pension will be calculated with particular reference to how the entlement will be reduced by a "rebate derived amount" for those public sector workers who were contracted out of NI. The way I read it, some of the previous posters seem to be very optimistic and I interpret the rules in such a manner that if you have been contracted out for all your career of 35+years, you will only get £110. (was £107 prior to inflation uplist this month) - no matter how much NI you have paid.

Be warned, you need a degree in gobledygook to be able to understand the technical note on the DWP website.

[Bob Viking]

Al R.
That link you have posted confirmed what I suspected. I opted to remain in the child benefit scheme despite being above the threshold because I had heard about the link to state pension contributions. Does this mean that vast swathes of society have been conned into giving up an entitlement to theirs?
BV

[Al R]

Hi Bob, I hope you're doing well. It sure wasn't widely promulgated..! As much as anything also of course, it gets more and more people onto a self assessment based tax scheme which is what HMRC wants.

I've mentioned it to all my clients this year who I thought may have opted out, and it cropped up in conversation last week. So, I thought it might be useful passing the info on. I don't know how to go back onto the system if you've opted out because I haven't yet looked into it, but if you have opted out, it certainly makes sense to take advice on opting back in.

[m0nkfish]

The webpage you have linked to only says you need to be entitled to claim child benefit, it doesn't say you must actually be claiming it?

Or am I missing something?

[m0nkfish]

The webpage you have linked to only says you need to be entitled to claim child benefit, it doesn't say you must actually be claiming it?

Or am I missing something?

[Al R]

m0nkfish

I edited badly, sorry. There are two issues; opting out of child benefit system and opting out receiving the actual payments. If you don’t want the payments it's still important to stay opted in, and if need be, then turn down the money. The problem has been that some people want to turn down the money but are not filling out the forms etc in the belief that there is no difference. There is. If you are entitled to receive child benefit, you qualify for NIC to protect your state pension entitlement. If you stop your child benefit payments you will still receive NIC as long as you are entitled to claim child benefit, and as long as DWP believes it.

For instance, If DWP isn't aware that mum is a spouse to a higher earning serviceman on duty and believes she has simply moved overseas (or is likely to be away for more than 52 weeks), or if an absence is likely to be more than 8 weeks (12 if a family member is ill), then DWP can change entitlement to Child Benefit and consequently, the NIC. It could be something as simple as changing your bank or address that triggers it. If DWP contacts you with a heart sinking official form to complete because of your circumstances, the danger is that many people will think "I've opted out of payments anyway. so it doesn't matter about returning it", and chuck it in the bin. It does matter, stay opted in at all times.. don't decline child benefit simply to avoid hassle.

There will be people who have opted out of payments and who will think nothing of the implications of still needing to claim entitlement.

[Just This Once...]

Now I am really confused as opted to stop my child benefit payments too. I am not sure in what manner that this was achieved or how I would check as the link to NI was lost on me! Wife works full-time and pays low-rate tax; like many on here it is my pay that pulls us into the high-rate tax / child benefit cease.

Still staggered that you can pay more NI and get less state pension.

[Al R]

If who stays at home to raise your children to (youngest) age 12 is ELIGIBLE to receive child benefit but then elects to stop the payments, you will get NIC paid.

But if DWP incorrectly believes that you become not eligible (for any number of regulatory reasons) for the benefit and if you don't affirm eligibility for the benefit (even though you don't want the money or because you already turned down the payments and don't now think it's important) you won't be likely to get NIC paid.

On a general note, when you change address/go overseas, then make sure that you get in touch with DWP and make sure that although you have previously turned down the payments, you are still staking a claim to eligibility. If your wife is working, she will be paying NIC anyway.

If you want to chat one to one about it, just drop me a PM.

[Just This Once...]

Thanks Al. So, if I understand you correctly, for someone like me with a working wife and my youngest child over the age of 12 this has no effect.

Guess I only have the state pension (and FAFPS) to worry about!

[Al R]

If you have a tax paying wife (I long ago realised there was a subtle difference - stay at home mums might not pay tax but do work!), correct. If you have a child under 12 - and if your wife is either looking after them at home or works but doesn't earn enough to pay NIC - Child Benefit helps qualify for ‘credits’ which count towards your State Pension.

Who knows - you might be one of those to benefit from F-AFPS?! I wish they'd get that new calculator up and running though.

[Just This Once...]

Funny you should say that but from what I can work out I appear to be a big winner on FAFPS, well as long as I make (or can stick it) to 55. Leaving at less than 55 seems far from ideal.

I've been selected for the calculator testing in a few weeks, ahead of the go live date.

[Al R]

Don't forget the normal pension age is 60, not 55 and the deferred pension age will be linked to State Pension Age. You'll accrue benefits at a decent rate (1/47) but if you want to take balance of the new benefits at 55, they'll be reduced.

That employer cost cap ('backstop protection to the taxpayer') is a spectre.

[Just This Once...]

Yep, that is how I understand it.

Will be interested to see how the actuarially reduced pension looks at 55, but I am sure it will look a lot better than a pension at 54. As I understand it retiring at 54 or before would leave you waiting for state pension age to see anything beyond the EDP - eeek.

[Al R]

If cost cap caveat includes costs incurred by 'changes to career paths' and has quite limited employer costs wriggle room of +/- 2%, you might be gone at 54 whether you like it or not. ;)

[Just This Once...]

Thanks for that!

:uhoh:

[Al R]

.. only joking. The consequences of the cost cap being breached are limited to the accrual rate being revised, so at 54 or so I imagine you'd be glad to limp away licking your wounds with only short term limited further loss. But as the cost cap is going to be assessed 'periodically', it doesn't add much to a sense of security. The real sickener would be a decreased revised accrual rate not being applied solely prospectively although, in fairness, there are floor and ceiling levels in case the accrual rate needs to be revised upwards if costs decrease. Hmmm.. right.

[VinRouge]

Useful Info....

HM Revenue & Customs: How claiming Child Benefit can protect your State Pension (http://www.hmrc.gov.uk/childbenefit/start/claiming/protect-pension.htm)

[Al R]

VR

Thats the thing; ensuring that you are able to claim the benefit but concurrently reject the money (if you wish) can ringfence state pension credits. If DWP believes that you are entitled to receive Child Benefit, regardless of you subsequently rejecting payments, you can still qualify for those credits.