I am quite perplexed with the situation in which my National Insurance record shows my forecast state pension in November 2023 as £212 weekly despite my current full contribution years being 31.
It has been my understanding in order to receive full state pension in due course, I need to have 35 qualifying years.
Therefore I have been considering topping up some gap years via Class 3 NI contributions.
State pension: How have I earned a £212 a weekpayment after only 31 years?
However, on contacting the Future Pension Centre regarding the above matter, I was advised not to waste money as I have already attained the maximum weekly forecast.
Would you be able to throw some light on the matter please?
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Steve Webb replies: Although the new state pension is often described as a ‘flat rate’ pension, it will take a while before most people who retire get exactly the standard flat rate amount.
We get a lot of letters from people who are querying why they are getting less than the flat rate (often to do with having been in a ‘contracted out’ pension at some point), so it is nice to hear from someone who is set to get more than the flat rate.
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In fact, there are several different reasons why people might get a forecast which is above the new flat rate.
I will start with your specific situation but will then also mention some other scenarios in which people could end up with higher state pensions.
As you may recall, the old state pension, which applied to those who reached pension age before 6 April 2016, had two elements.
These were a basic state pension, based on 30 years of National Insurance Contributions or credits, and an additional earnings-related state pension often known as SERPS.
The current rate of the basic state pension is £137.60, but the SERPS amount depends on your individual circumstances.
It can be anything between zero and a maximum of around £180 per week, depending on your workplace pension arrangements
When the new state pension was introduced, it would have been very unfair to those – such as yourself – who had already built up pension rights in excess of the flat rate figure if your state pension had suddenly been cut.
For this reason, transitional rules were introduced which allowed you to ‘lock in’ the state pension you had built up under the old rules as at April 2016 where this was above the standard flat rate, though not to add to it.
To give some figures, if you already had 30 or more years of NI contributions by 2016 you would have got a full basic pension worth £137.60 in today’s money. Suppose you had also built up just under £75 of SERPS pension on top of this.
Then your combined basic and SERPS pension earned by 2016 would be £212 per week in today’s money. Rather than pay you the new flat rate of £179.60, you will instead get £212.
In short, your pension in effect depends on the ‘old system’ rules, even though a new system has been introduced.
How much damage will my state pension take from being contracted out?
Steve Webb replied to a previous reader question and explained how it works here.
It follows from this that there are two reasons why paying extra voluntary contributions would be a waste of time.
– Contributions for years up to 2015/16 would only count towards your old-style basic pension. If you’ve already satisfied the requirement to have 30 years of contributions by this point you cannot boost your basic pension any further.
In addition, you have to pay Class 3 NICs within six years, so filling years before 2015/16 would generally no longer be possible.
– Contributions for years from 2016/17 onwards don’t help because you’ve been ‘locked in’ at the 2016 calculation (apart from annual revaluation for inflation since then).
The transitional rules allow you to get more than the flat rate but not to add to this higher figure.
For completeness it is worth mentioning a couple of other situations in which people might find themselves on more than the standard ‘flat rate’ amount.
The first is that – as discussed in my previous column – you can inherit state pension from a late spouse and this is added to your new state pension figure. This could take you above the standard rate.
The second situation would be if you ‘defer’ taking your state pension. Every year you postpone adds 5.8 per cent to the rate of pension that you receive.
I’ve had a look at the latest government figures, and it is surprisingly common for people to get more than the standard flat rate amount.
Of roughly 1.7million people on the new state pension, more than 450,000 are apparently getting more than the flat rate, or more than one in four of all recipients.
Over time, the number of people getting either more than or less than the standard flat rate will steadily diminish.
But transitional rules, such as the one from which you have benefited, have been put in place as we gradually move from one system to another.
These are designed to avoid the unfairness of taking away from you pension which you had already built up.
Incidentally, I often hear from people who retired under the old system, and because the old basic pension is £137.60 a week believe those who retire later are treated more favourably because they may qualify for the current standard flat rate of £179.60 per week.
However, in most cases, the people on the lower sum who retired before 2016 receive less than £179.60 because they didn’t build up any SERPS, or only a small amount on top of their basic state pension, usually because they were contracted out or were self-employed. I covered this issue in more detail in this column.
Ask Steve Webb a pension question
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at firstname.lastname@example.org.
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
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