The State Retirement Pension has two major components, the Basic Pension and the Additional or State Second Pension (SERPS - S2P). It is payable to both men and women who have paid sufficient Class 1 (full rate) National Insurance Contributions (NICs).
Option to top-up State Pension
If you are going to reach State Pension Age before 6 April 2016, you may be able to make additional National Insurance Contributions to increase your state pension by between £1 and £25 per week. This facility will be available between October 2015 and April 2017. Please visit the website for more details.
State Pension Age
State pension age is the earliest age at which you can claim your state pension. Men born before 6th April 1954 are eligible to receive their state pension at 65. Women born before 6th April 1950 are eligible to receive their state pension at 60.
State pension age then rises progressively to 66 for men and women born after 5th April 1954; to 67 for those born after 6th April 1969 and to 68 for those born after 6th April 1979.
Until April 2016
The full Basic Pension will be paid to both men and women who have paid Class 1 NICs for 30 years.
Additional Pension - State Second Pension (SERPS - S2P)
Currently, this is paid on top of the Basic State Pension and is based on earnings after 1978.
If you were in 'Contracted in' employment you will be entitled to the Additional Pension.
If you were 'Contracted out' such as in the Teachers' Pension Scheme (TPS) and Local Government Pension Scheme (LGPS), your NICs were lower and the employers' pension incorporates what you would have earned in Additional Pension had you remained 'Contracted In'. 'Contracting out' will cease after April 2016.
From April 2016
A new Flat Rate Pension will be introduced.
- It will apply to women born after 6th April 1953 and men born after 6th April 1951 (pension ages 63 and 65 respectively).
- 35 years NICs (with a minimum of 10 years) will be required to qualify.
- Any years of 'contracted out' employment (such as in the TPS and LGPS) will affect the actual rate received. However, no-one will receive less state pension than they would have under the pre-April 2016 state pension arrangements.
- The new full State Pension will be no less than £148.40 per week. The actual amount will be set in autumn 2015.
- You cannot defer your pension until 2016 in order to receive the new flat rate.
Incomplete NIC record
Anyone qualifies for a pension based on the number of years of NICs paid. It may be possible to buy additional years of NICs if you have a shortfall.
Credits for looking after children
Women (and men if they claimed Child Benefit) who stayed at home looking after children after 1978 may qualify for credits which will count towards the state pension.
You can obtain a state pension statement from the forecast team (0345 3000 168) or online. It will confirm your pension age, how much pension you have earned to date and, if you have not yet reached a full entitlement, how you can maximize your pension. It also logs your current address.
Claiming your pension
About one month before your State Pension age birthday a claim form should be sent to you. You must claim your pension if you wish to take it otherwise it may be deferred automatically. This may or may not be to your advantage. Claim on 0345 606 0265 or online.
Working after State Pension Age
You don't have to stop working when you reach State Pension age, but you'll no longer have to pay National Insurance.
Deferring your state pension
You may sacrifice your pension and then receive an increase of 10.4% when you take it, or, take the deferred amount with interest and the pension without an increase. The benefit of doing so is marginal and takes some years to be advantageous. The increase reduces to below 6% in 2016 when the Flat Rate Pension is introduced and the option to take the deferred sum will be discontinued.
Increases to the state pension
Increases to the state pension are decided under the 'triple lock' guarantee, which means that your state pension will always increase by whatever is the highest of inflation, average earnings or 2.5 per cent. In April 2015 Pensioners will get a 2.5 per cent increase in their basic state pension.
Introduction of the Single Tier State Pension
You will no doubt be aware that from 6 April 2016 a new 'single-tier' State Pension will be introduced. This will replace the existing Basic State Pension and Additional State Pension.
If you have already retired and you have started to receive your state pension, the changes from 6 April 2016 will not affect you.
Under the current arrangements, which cease on 5 April 2016, members of the Teachers' Pension Scheme (TPS) and Local Government Pension Scheme (LGPS) are contracted out of the Additional State Pension. People who are contracted out receive the Basic State Pension, but do not receive the Additional State Pension. In return, members of contracted out pension schemes like the TPS and LGPS pay lower National Insurance (NI) contributions on the basis that their workplace pension scheme provides additional and more than adequate alternative benefits. NI is paid by both employers and employees as a percentage of income.
From April 2016 the Basic State Pension and Additional State Pension will cease and will be replaced by the 'single tier' State Pension. The changes will mean the TPS and LGPS will no longer be contracted out and you will start paying the standard rate of NI contributions; an increase of 1.4%.
Members who reach state pension age after 6 April 2016 will receive the new 'single tier' State Pension. The amount you receive will depend on your NI record and the number of non-contracted out years you qualify for. To qualify for the full 'single tier' State Pension, you will need to have 35 non-contracted out years of service. Not everyone will qualify for the full new 'single tier' State Pension, especially those retiring on or soon after 6 April 2016. However, no one will be worse off under the new scheme. The government has confirmed that everyone claiming their state pension after 6 April 2016 will receive whatever is higher – either the amount you would get under the old system or the amount you would get under the new system. To find out what your state pension will be, please visit the DWP website.
If you have any queries about your state pension, the TPS or LGPS, please contact the ATL pension team or call 020 7930 6441.
Single tier pension and GMP/contracting out
With the introduction of the single tier state pension in 2016 comes the end of contracting out of the state second pension, formerly the State Earnings Related Pension Scheme (SERPS).
In the past, people in good occupational pension schemes were allowed to 'contract out' of the non-basic part of the state pension as their occupational pension scheme would provide at least as good benefits as the state second pension. In return, the employee and employer paid lower national insurance contributions. Teachers in the Teachers' Pension Scheme (TPS) fall into this category.
The portion of occupational pension paid that relates to the state second pension (or SERPS) has been increased each year in payment by the government, often referred to as the guaranteed minimum pension (GMP) amount. From 2016, this arrangement will cease and some people will find that their occupational pensions scheme increase overall is not as much as when the GMP portion was increased by the state from 1978-88.
This is likely to affect you most if you are due to retire in the 2016-17 tax year and you have been in the working full-time and contributing to the TPS (and therefore 'contracted out') from 1978 to 1988, when the government paid the GMP increases. This is because if you reach state pension age before April 2016 the new rules will not affect you, and if your state pension age is April 2017 onwards, you will be building up some further entitlement under the new rules.
ATL would like to hear from you if you fall into that category. Please contact the pensions team, indicating that you are affected by this GMP issue.
NB: From 2016, contracting out ends for all and so employees and employers will pay the full national insurance contribution. This will amount to around an additional £30 per month, for an employee earning roughly £34,000 per annum.
Need more help on pensions?
For further information or for specific advice on pensions issues, please contact the pensions team at ATL's London office. The telephone number for pensions enquiries only is 020 7782 1600. Please ensure that you have your membership number and relevant papers to hand when contacting ATL. Lighthouse Financial Advice has been appointed by ATL as the preferred provider of professional financial advice, should you wish to seek this. Please visit their website or call 08000 85 85 90 for more details.