State Pensions and Contracting-out
There are two parts to the state pension – the basic state pension, which almost everyone gets, and the Additional State Pension, which is only for employees. You qualify for the basic state pension by reaching state pension age and making 30 years' worth of National Insurance contributions.
Basic State Pension
The basic State Pension is worth £113.10 a week for a single person in 2014/15 (or £5,881 a year).
If you’re married, and both you and your partner have built up state pension, you’ll get double this amount – so £226.20 a week. But if your partner has not built up their own State Pension, they'll still be able to claim a state pension based on your record.
If your income is below a certain level, you can currently boost it by claiming pension credit although this is changing in April 2016. This will take your income up to £148.35 a week for a single person and £226.50 a week for a couple.
Topping up the State Pension
In April 2014, it was announced that those retiring before the flat-rate State Pension is due to start in April 2016 will be able to gain additional State Pension by paying so-called Class 3A voluntary National Insurance contributions between October 2015 and April 2017.
To increase your state pension by £1 per week will cost £890 if you are 65 years old. The maximum you can top up your pension by is £25 per week, which would cost £22,250 at age 65. The cost of topping up falls as your age increases, so for a 70 year old an extra £1 per week costs £779, for a 75 year old it’s £674 and for someone aged 80 it costs £544.
Additional State Pension (S2P)
You may also qualify for some additional state pension, also known as State Earnings Related Pension Scheme (Serps) or state second pension (S2P). However please note this is being abolished in April 2016.
This additional pension is based on your earnings. The maximum you could claim in 2013/14 was £163 a week on top of your basic State Pension - taking your total to £273.15 a week.
Most people opted, or 'contracted', out of the additional state pension at some point in their working lives.
It is important to note that as a member of the Willis Pension Scheme, you are “contracted out” of S2P. This means that you are only likely to receive S2P pension if your earnings are relatively low. However you will pay a lower rate of National Insurance contributions. S2P replaced a similar scheme know as the State Earnings Related Pension Scheme (SERPS) from 6 April 2002.
To be allowed to contract-out the Scheme has to satisfy certain tests which are intended to ensure that the pension you will receive will be as good as the alternative State benefits. Up until 6 April 1997 the Scheme had to provide a specific minimum quantity of pension for each individual member, known as the “Guaranteed Minimum Pension”. After 6 April 1997 the Scheme has to meet a quality test by providing benefits that are broadly equivalent to or better than those in the “Reference Scheme” which is set out in the Pensions Act 1995. The Scheme Actuary has to certify that this requirement is met every three years. Your entitlement to the basic State Pension and other State benefits is not affected by contracting out.
State Pension Reforms
The amount of state pension you get will change in April 2016. The basic and additional State Pensions are going to be replaced by one flat-rateState Pension, worth £144 a week in today's money.
The additional pension and 'contracting out' will be abolished, and so will part of pension credit. Qualifying National Insurance years will also increase from 30 to 35 years.
State Pension Age
You can claim state pension when you reach state pension age. For men this is currently 65. For women, state pension pension age has started to rise, from 60 in 2010 to 65 in November 2018.From December 2018 state pension age will rise for both men and women, until it reaches 66 in April 2020 and 67 between 2026 and 2028. After this, the state pension age will be linked to longevity, and will be reviewed every five years.
