STATE PENSION BENEFITS

“Everyone gets the Basic State Pension, don’t they?”

Well not necessarily – your entitlement to the Basic State Pension depends on your record of National Insurance contributions throughout your working life.

“How much is it?”

The Basic State Pension for the 2006/07 tax year for a single person is £84.25 per week (£4381 per annum).

In order to qualify for this you must have a full record of National Insurance contributions. The pension you get depends on how long you have worked for and the number of “qualifying years” you have.

For example, a man starting work at 16 and working to 65 will need 44 “qualifying years” and a woman with a working life of 44 years will need 39 “qualifying years” for a full pension.

The simplest way to find out how much you are entitled to is;

1. Complete a BR19 pension forecast form print and post by clicking here.

2. If you have any other queries, contact our Pensions Information Manager on  0845 241 4150 (Local Rate) during office hours or just leave a message outside office hours and we will get back to you.

3. You can phone The State Pension Forecasting Team on 0845 300 0168.
The number is open weekdays from 8am to 8pm and Saturdays 9am to 1pm.

“What happens if I have not paid enough National Insurance contributions?”

If you have not paid sufficient contributions you may get a partial pension or it is possible you may not receive a pension at all. This would only happen if you reached retirement with less than 25% of the qualifying years for a full pension.


However, it is unlikely, as the contribution record of people who have not worked due to sickness, unemployment, or caring responsibilities such as bringing up the children may be protected by credits or “home responsibilities protection”.

The simplest way to find out how much you are entitled to is to complete a BR19 pension forecast form. The form can be obtained by contacting us on 0845 241 4150 or click here  to download the form from our site, you will require Adobe reader.

“When do I receive my State Pension?”

For men the State Pension is payable from age 65. The Government has introduced legislation to equalise the state pension age at 65 for both men and women.  This change will be brought in between 2010 and 2020.  For women born before 6th April 1950 there will be no change and they will be able to draw their state pension from age 60.  For women born between 6th April 1950 and 5th April 1955 the state pension age will fall between 60 and 65, and for women born after 6th April 1955 it will be 65.

For women born between 6th April 1950 and 5th April 1955 you can find out your state pension age by contacting us on 0845 241 4150

Alternatively you can use a state pension age calculator: click here

“Do I have to take my State Pension at normal state pension age?” 

You can of course take it, but you can also carry on working and take it or simply defer taking your State Pension for as long as you want. 

For each year that you defer it, your pension will increase.  You can gain extra pension at the rate of 1% for every 5 weeks you don’t take it.  This doesn’t sound a lot but it equates to roughly a 10.4% increase in your pension for each year that you defer it. 

As well as additional pension, if you defer taking your pension, when you do start to draw it you can also have a lump sum. If you elect for this, your pension will roll up at 2% above the Bank of England base rate per annum.

Here is an example:

Mr Smith is entitled to a pension of £105 a week at age 65.  He decides to defer this for 5 years.  When he reaches 70 he will be entitled to a taxable lump sum of £32,100. His pension will also have increased. If the Bank of England base rate were 4.5% for the whole 5 year period his pension will increase at 6.5% per annum. This means that when he comes to draw his pension at 70 he will get an increased pension of £143 a week on top of the lump sum.

(This example is illustrative and doesn’t take into account annual pension increases.)

“What are the State Earnings Related Pension and the State Second Pension?”


As well as the Basic State Pension you may be entitled to additional state pension benefits from the State Earnings Related Pension Scheme (SERPS) and the State Second Pension (S2P). 

 

SERPS was introduced in 1978 as a top up to the Basic State Pension. SERPS was also based on National Insurance contributions like the Basic State Pension SERPS provided an additional pension, which was linked to earnings.

SERPS was replaced in 2002 by S2P. This works on a similar basis, but with a stronger emphasis on helping lower to middle income earners.

The formula to calculate both SERPS and S2P is complicated. The best way to find out how much you could be entitled to from SERPS and S2P is to apply for a pension forecast using the BR19 form which you can get from us or directly from the DWP.

If you are an employee you are allowed to opt out or “contract out” of SERPS/S2P through a Personal or Stakeholder Pension. (Self-employed are only eligible for the Basic State Pension.) There is no difference to your National Insurance contributions, but some of it is directed as a “rebate” into a Personal or Stakeholder Pension plan.

As if this wasn’t complicated enough, those of you who were working before 1975 may be entitled to benefits from the old Graduated Pension scheme.

As mentioned earlier the simplest way to obtain an accurate forecast of your state pension benefits is to request a pension forecast by telephoning or completing the BR19 form. The Department for Work & Pensions Retirement Pension Forecasting Team will reply with a forecast showing all of your state pension benefit entitlements. 

You can ask the Department for Work and Pensions questions such as whether you can make up your pension by paying additional National Insurance contributions, or what the effect of deferring your pension may be.This is the first step to assessing what your overall position will be when you retire. 

“What are Pension Credits?”

Pension credits are on top of your State Pension. If you have no other income apart from your State Pension you may be entitled to have your income topped up by Pension Credits. This guarantees that everyone over the age of 60 has a minimum income.

For the 2006-2007 tax year this is £114.05 a week in total if you are single, and £174.05 a week if you have a partner.


Summary 

You should be entitled to a pension provided by the state. Request a pension forecast and on receipt of the information from the DWP note it down on the pension assessment form in the leaflet “Pensions- How much will you receive?”

This document is for guidance only, and professional advice should be obtained before acting on any information contained herein. We cannot accept any responsibility for loss occasioned to any person as a result of action taken or retained from in consequence of the contents of this publication.

 

Scottish Transport Credit Union Limited Authorised and Regulated by the Financial Services Authority