This month’s Forces Pension Society column highlights the importance of knowing the ins and outs of your State Pension…
The State Pension – Just a Little Reminder!
Most of you will think you are far too young for us to remind you about the State Pension but it is never too early to be aware of the rules surrounding it and how to check the contributions you have made to date. In this article Mary Petley of the Forces Pension Society provides a recap of the 2016 changes to State Pension provision which introduced the Single Tier Pension and explains how you can keep an eye on your entitlement.
So, first, the changes. Before 6 April 2016 what we all understood as the State Pension was made up of two parts: the Basic State Pension and Additional State Pension designed to supplement the Basic State Pension. Everyone (save the very low paid) paid a minimum level of National Insurance Contributions (NICs) which counted towards their Basic State Pension. However the same was not true of the Additional State Pension. Many employers’ pension schemes, including all in the Armed Forces Pension Schemes, were “contracted out” of Additional State Pension arrangements. The benefit of being “contracted out” was that the scheme members paid 1.4% less of their pay in NICs than would otherwise have been the case. The downside was that members received a smaller overall State Pension. From 6 April 2016 this ceased and everybody in the UK who pays Class 1 NICs pays them at the same, higher, rate towards their Single Tier Pension entitlement. That means that all, except those who joined after that date, will have a combination of ‘old’ and ‘new’ contributions. The following Q&A covers the sort of questions that have arisen since the changes took effect.
What will I get for my money?
The ‘old’ Basic Pension rate went up to £137.60 per week from 6 April 2021 (that is just nearly £7,200 per year). The new Single Tier Pension rate from the same date is £179.60 per week (so, just over £9,300 per year). Both of these sums are well worth having!
How long do I have to pay to qualify for the Single Tier Pension?
You need 35 years’ NICs to qualify for the full Single Tier Pension rate. Those who pay NICs for a total of 10 years but less than 35 will get a proportion of the full Single Tier Pension. Anyone who has less than 10 years’ contributions in total or from April 2016 will not qualify for anything from the new scheme.
So, if I have a mixture of ‘old’ and ‘new’ NICs, how will my State Pension be worked out?
In 2016 the DWP sent everyone a notice of their ‘foundation amount’ which took account of all NICs paid up to 6 April 2016. As long as you pay for a total of 35 years, with just over 8 years at the higher rate, you will qualify for the full Single Tier Pension.
Will my AFPS pension be affected when I claim my State Pension?
The only people who will see an impact will be those who have service before 1 April 1980 – and I doubt there are many still serving who have. Those who have will see a reduction of 87P for every year of reckonable service before that date and the reduction will take place at their State Pension Age.
Do I have any choice about paying NICs?
I am afraid not. We all have NICs deducted from our pay as long as we are working. Class 1 NICs stop at State Pension Age, irrespective of whether you continue working or not. If you are considering self-employment, you can pay either Class 2 or Class 4 NICs.
Class 1 applies to employees earning over £184;
Class 2 applies when your earnings from self-employment are over £6,515 but less than £9,568. Those earning less than that amount can pay Class 3 (voluntary) contributions;
Class 4 applies when your profits from self employment are £9,568 or over.
Class 1 and 2 NICs stop when you reach State Pension Age. Class 4 NIC stop at the end of the tax year in which you reach State Pension Age – the next year you are exempt.
The thresholds are normally revised each April and, with effect from 6 April 2022, there will be a Health and Social Care Levy of 1.25% added to the NICs of Class 1 and Class 4 NIC payers.
How can I check that my contribution record is correct?
It is a good idea to check your contribution record and there are several ways to do it. You can write to the National Insurance Contributions Office at:
The Pension Service 9
Mail Handling Site A
Or you could ring them. The phone numbers are:
From overseas – +44 191 218 3600
From UK – 0800 731 0175
Or you can check online You can check online : https://www.tax.service.gov.uk/check-your-state-pension .
What if I find that there are gaps in my record?
If you have had no breaks in your Armed Forces service, your NIC record for that period should be complete. If it is not, you need to challenge it and you will probably need the help of DBS to prove what has been paid on your behalf.
What if those gaps are correctly shown? Can I pay extra to fill them?
You can buy back up to 6 years NIC ‘cover’ by means of paying Voluntary Contributions (Class 3 NICs). More information about Voluntary Contributions can be found at https://www.gov.uk/voluntary-national-insurance-contributions .
I am going to live abroad. Does my NIC record just get frozen?
You have a choice. You can either leave the number of NICs you have paid as they are – in which case, when you get to State Pension Age, you will get the proportion of the full rate that you have paid for. Alternatively, you can pay Voluntary Contributions and information about this can be found by following the link above. If you are working whilst abroad, paying Voluntary Contributions to the UK State Pension does not prevent you from paying into the state system for the country in which you live.
If I am living abroad, does my State Pension get paid in the same way as if I were in UK.
Yes. You will get your State Pension paid at the same age and at the same initial rate as if you had remained in the UK – remember, if you haven’t paid 35 years contributions, with just over 8 years’ worth of contributions at the higher rate of contributions, you will not get the full £179.60 per week. However, although the initial rate of State Pension will be the same rate as if you remained in UK, in certain countries, you will not get the annual rise to your State Pension that UK residents receive. To find out more about the State Pension for those living abroad, visit https://www.gov.uk/state-pension-if-you-retire-abroad .
It is a long way off, but how do I claim?
When you are ready to claim your State Pension, information about the various methods of claiming (from UK or overseas), including links to the claims forms, can be found at https://www.gov.uk/new-state-pension/how-to-claim .
If you are a member of the Forces Pension Society and have further questions about your AFPS benefits, email us on firstname.lastname@example.org . If you are not a member but would like to learn more about us, visit our website www.forcespensionsociety.org