State Pension Forecast query

[StepOne]

Hi,

I got an online State Pension forecasts last night for myself and my wife.

Mine says I can get my state pension in 2035 (age 67), it will be £155 a week and I need 2 more years of NI contributions to reach this maximum. My NI record says I have made 28 years of contributions, so I assume 30 years in total.

My wife's forecast was for the same amount. She is 3 years younger than me (born 1971), but the system says she needs to pay an additional 10 years of contributions. Her NI record shows 27 years of contributions to date.

So, it looks to me like my wife is expected to pay 37 years of NI contributions to get her full state pension entitlement, whereas I only need to pay 30. Does this sound correct? Can anyone explain this difference, or has the system got something wrong?

Thanks very much
StepOne

[swill453]

So, it looks to me like my wife is expected to pay 37 years of NI contributions to get her full state pension entitlement, whereas I only need to pay 30. Does this sound correct? Can anyone explain this difference, or has the system got something wrong?

She was likely contracted-out of the state pension for some time in her career (which means the "missing" money will feature in another pension for her).

By working extra years she can top up the state pension towards the full flat rate.

Scott.

[StepOne]

Thanks Scott, but I don't think that is the case - she's worked for the nhs, and been in their final salary scheme, the whole time apart from a 2 year sabbatical with vso.

[swill453]

Thanks Scott, but I don't think that is the case - she's worked for the nhs, and been in their final salary scheme, the whole time apart from a 2 year sabbatical with vso.

I don't know much about the NHS pension scheme, but a quick Google implies that it is (or rather was) a contracted-out scheme.

Scott.

[pochisoldi]

Hi,

I got an online State Pension forecasts last night for myself and my wife.

Mine says I can get my state pension in 2035 (age 67), it will be £155 a week and I need 2 more years of NI contributions to reach this maximum. My NI record says I have made 28 years of contributions, so I assume 30 years in total.

My wife's forecast was for the same amount. She is 3 years younger than me (born 1971), but the system says she needs to pay an additional 10 years of contributions. Her NI record shows 27 years of contributions to date.

So, it looks to me like my wife is expected to pay 37 years of NI contributions to get her full state pension entitlement, whereas I only need to pay 30. Does this sound correct? Can anyone explain this difference, or has the system got something wrong?

Thanks very much
StepOne

Does this help?
https://www.gov.uk/new-state-pension/how-its-calculated

Old rules - 30 years for full pension
New rules - 35 years for full pension

Anyone who will get a pension after April 2016, born before 2000, and who made NI contributions before 2015, will have a pension calculated in such a way that they don't lose out.

[mc2fool]

As Scott says, it's almost certainly due to being contracted out, and that will be reflected in her (and your) COPE (Contracted Out Pension Equivalent). For each of you tell us:

• how much your pension based on your National Insurance record up to 5 April 2016 will be
• what your COPE is (scroll down the online page and click on how contracting out has affected your pension income)

Then we'll be able to tell you how it's been arrived at.

[StepOne]

Thanks M,

I can tell you that my COPE is 12.89 a week and my pension to 5 April 2016 is 148.97 a week. 2 more years required to get me to 155.65.

I can get the figures for my wife tonight.

Thanks
StepOne

[Lootman]

Old rules - 30 years for full pension
New rules - 35 years for full pension

Anyone who will get a pension after April 2016, born before 2000, and who made NI contributions before 2015, will have a pension calculated in such a way that they don't lose out.

That's my understanding as well. My pension forecast is clearly calculated under the old rules, since the projected pension exceeds the maximum allowed under the new rules. So it's possible here that one spouse is computed under the new rules, and therefore needs 35 years. Whilst the other is computed under the old rules, and needs only 30.

There's another variable too and that is any earnings-related component. What that means in our case is that my state pension will be higher than my wife's even though she has more years' contributions than me, and neither of us were contracted out.

This supplement can take the state pension well over 200 a week, although I imagine it is capped at some point. There is no such earnings-related component in the new system which is therefore worse for anyone on good earnings. I can only assume it's better for low income folks, at least if they work for 5 more years.

[StepOne]

As Scott says, it's almost certainly due to being contracted out, and that will be reflected in her (and your) COPE (Contracted Out Pension Equivalent). For each of you tell us:

• how much your pension based on your National Insurance record up to 5 April 2016 will be
• what your COPE is (scroll down the online page and click on how contracting out has affected your pension income)

Then we'll be able to tell you how it's been arrived at.

I've got all those figures now.

Me - 148.97 to April 2016. COPE 12.89. 2 more years to get to 155.65
Wife - 114.99 to April 2016. COPE 35.47. 10 more years to get to 155.65

So it looks like she has spent more time contracted out than I have which explains why she has more years to work?

[mc2fool]

Me - 148.97 to April 2016. COPE 12.89. 2 more years to get to 155.65
Wife - 114.99 to April 2016. COPE 35.47. 10 more years to get to 155.65

So it looks like she has spent more time contracted out than I have which explains why she has more years to work?

Ok, you have 28 qualifying years, so your 6-Apr-2016 "starting amount" is as follows. Under the new system calculation your new state pension would be 28 35ths of the full NSP, less your COPE, so (155.65 * 28 / 35) - 12.89 = £111.63. They're saying your starting amount is £148.97, which is higher, so your starting amount is actually calculated under the old system, being 28 30ths of the full BSP, plus additional state pension, which we deduce. So (119.30 * 28 / 30) = £111.35 plus ASP of £37.62.

Your wife has 27 qualifying years, so her 6-Apr-2016 "starting amount" under the new system calculation is (155.65 * 27 / 35) - 35.47 = £84.60. They're saying her starting amount is £114.99, which is higher, so her starting amount is also calculated under the old system, being (119.30 * 27 / 30) = £107.37 plus ASP of £7.62.

So, basically, yes, she gets less because she's been contracted out more, and in fact what's happening is that your amounts are both as per the old system (being the higher for your cases) and you have a larger additional state pension, due to having been contracted out less.

Now, from this point on you can ignore how you got to your starting amounts, all that counts is the amounts themselves and the fact that each and every additional qualifying year 2016 onwards will boost your pension by ~£4.45, until you reach £155.65 or your state pension age, whichever comes first (the former in your cases).

If you really want to know the full details and breakdown of your cases, the pension service can tell you but you have to get a paper state pension statement first, and it's helpful to know what to ask. A while back I wrote up how the calculations under the old and new systems, and the "starting amount" at April 2016, work which you may find useful background. The numbers have changed since (it's now (£119.30/30 = ~£3.98 for old and £155.65/35 = ~£4.45 for new), and COD+RDA for the new system is now called the COPE, oh, and where it says "current" state pension it, of course, would now read "old" -- but otherwise the explanation is still good

I've archived it at http://web.archive.org/web/201701120049 ... 01655.aspx

[pochisoldi]

As Scott says, it's almost certainly due to being contracted out, and that will be reflected in her (and your) COPE (Contracted Out Pension Equivalent). For each of you tell us:

• how much your pension based on your National Insurance record up to 5 April 2016 will be
• what your COPE is (scroll down the online page and click on how contracting out has affected your pension income)

Then we'll be able to tell you how it's been arrived at.

I've got all those figures now.

Me - 148.97 to April 2016. COPE 12.89. 2 more years to get to 155.65
Wife - 114.99 to April 2016. COPE 35.47. 10 more years to get to 155.65

So it looks like she has spent more time contracted out than I have which explains why she has more years to work?

I looked at my forecast again, and where the starting amount is less than the full pension, the number of full years for a full state pension is =roundup((maximum pension-starting amount)/4.45,0)

The COPE figure is there to provide an (half [expletive deleted]) explanation of why the starting amount isn't as big as you might expect.

One thing I am happy about is that the next 7 full years of (unavoidable) NI contributions will have some value for me - making up the COPE deduction.

Whether the system stays untinkered with for long enough to claim it is a different question altogether.

PochiSoldi

[StepOne]

Thanks for the replies everyone. At least now I know why they are different and that there is no mistake that I need to chase up. I'd read your calculations before, mc2fool, but it's funny how these things don't really stick in your minds until you have to go through it yourself!

I'll not be stopping work in the next 10 years anyway (unless I win the lottery) so the difference is a bit irrelevant, but it's good to know the numbers anyway.

Thanks,
StepOne

[mc2fool]

I looked at my forecast again, and where the starting amount is less than the full pension, the number of full years for a full state pension is =roundup((maximum pension-starting amount)/4.45,0)

Yes, you can't buy/earn part years. So in StepOne's case, where his starting amount is £148.97, the next qualifying year will add £4.45 and get him to £153.42, but the one following will only add a further £2.23, getting to the max of £155.65. If he were buying qualifying years with, voluntary NICs, that might give him pause to reassess the payback period, but as he's getting them through working anyway it's just what it is....

[URRZZ]

Old rules - 30 years for full pension
New rules - 35 years for full pension

At present I think far too much emphasis is being put on the '35 years for a full pension under the new rules'. Whilst it will be true for those starting out their working lives under the new rules, for those who have already built up years under the existing rules it's far more complicated, as this thread demonstrates.

Under the transitional rules it's possible at one extreme to get far more than £155.65 with less than 35 years (due to the old SERPS/S2P/additional pension for those 'contracted in') or much less than £155.65 with 40+ years (for those who have been 'contracted out' for most of their working lives).

Anyone in their 50s is well advised to get an individual State Pension statement to understand their own position rather than assuming that they will get £155.65 if they have 35 years / need 35 years to get £155.65

[mc2fool]

At present I think far too much emphasis is being put on the '35 years for a full pension under the new rules'.

Yes, indeed, it's too simplistic, and for large swathes of the population misleading and incorrect. It also gives the impression that having got 35 years there's no point in getting any more, whereas, in fact, anyone that has a 6-Apr-16 starting amount of less than £155.65 can increase their pension to that by adding further qualifying years, 2016 onwards, even if they already have more than (or pass) 35 years.

The other common myth is that, as the "starting amount" is taken as the higher of the old and new systems, anyone reaching state pension age from 6-Apr-16 onwards who made NICs before that won't lose out. That's true, but only for the starting amount at 6-Apr-16. After that at least some (possibly many) of the folks that were contracted out will lose out on inflation increases to their GMP (Guaranteed Minimum Pension).

The GMP, which is paid by the private pension scheme, replaces the part of the Additional State Pension for when you contracted out. However, the private pension scheme only provides inflation indexed increases for post-1988 GMP and only for up to 3%. All of the inflation increases for pre88 GMP and >3% for post88 were provided by the ASP. I.e. the ASP topped up the GMP to give you (in theory at least) the same as if you hadn't contracted out.

However, the "starting amount" calculation nets off and "fixes" the ASP amount, and so many people will lose out on inflation increases on their pre88 GMP and >3% post88 GMP going forward. It's complicated