The New State Pension System

[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/Pens..._2012-2017.pdf