Half way to Retirement
Are you Half Way To Retirement?
You need to know about the basic State Pension. How much it will provide you with and whether it will be enough ? If it helps, the short answer is probably no.
Anyone who has worked and paid enough National Insurance (NI) contributions for a set number of years should be eligible for the basic state pension. It is currently paid to women over the age of 60 and men over the age of 65. But be aware that from 2010 the qualifying age for women will be gradually increased, until it too reaches 65 in 2020. The retirement age for men is also on the way up, to 66 and above. European sex-discrimination legislation means female retirement dates will almost certainly follow.
Most people believe everyone receives the full basic State pension on retirement - but thousands do not. The amount you are entitled to depends on the number of years you have worked and the amount of National Insurance contributions you have paid.
For once, the government has simplified matters and as long as you have 30 years full NI contributions you should get a full state pension. But if you haven't always been in work you may get less than you expect. Fortunately, it is possible to make up some lost ground if you are likely to lose out.
You could be in for a shock if you have missed contributions - the fewer credits you have, the smaller your slice of the State pension will be. If you have 15 qualifying years you will get only 50% of the basic pension - if you have less than that you may get nothing.
You can make voluntary contributions to make up an incomplete contributions record. But you must do this within certain time limits. You must pay by the end of the sixth tax year after the one you missed. So, effectively, you can make up only a maximum of six years of contributions.
Checking your entitlement
If you are coming up to retirement in the next few years, the best way to check is to get a State pension forecast using form BR19 from your local benefits agency or write to Retirement Pension Forecast and Advice Unit, Pensions and Overseas Directorate, Tyneview Park, Newcastle Upon Tyne, NE98 1BA. You can also fill in an application form online at :
http://www.thepensionservice.gov.uk/
The forecast will tell you the amount of basic pension you have already earned, and what you can expect at retirement taking into account what you might earn before you retire. It will also tell you if there is anything you can do to improve your pension, but you will have to follow this up yourself. If you are already retired and discover that you could qualify for a fuller pension by paying extra contributions, you can still do so - for up to six years.
The State Second Pension
Up to April 2002, the additional State Pension was called the State Earnings-Related Pension Scheme (Serps). Serps was based on your record of National Insurance contributions and your level of earnings as an employee.
In April 2002, the State Second Pension (S2P) reformed Serps to provide a more generous additional State Pension for low and moderate earners, and to extend access to include certain carers and people with long-term illness or disability. (Any Serps entitlement already built up is protected both for those who have already retired and for those who have not yet reached State Pension age.)
When you make your claim for a State Pension any S2P due to you will also be calculated. You will still be able to opt out of the second state pension and can ask that your NI contributions be redirected towards a company pension scheme, a personal pension or a stakeholder pension (although this is planned to be phased out in 2012).
The Government wants to help lower-paid workers, so benefits are concentrated at this end. Anyone employed by a company and earning more than the National Insurance Lower Earnings Limit will qualify for S2P. Also, certain carers and those who can't work through illness or disability will be treated as though they were earning at the Lower earnings limit, but to qualify they must meet certain conditions. As under Serps, both the self-employed and unemployed are excluded.
Opting out of the S2P
Workers can stop paying into the State Second Pension (S2P) and have part of their National Insurance Contributions (NICs) redirected into personal or company pensions. People who opted out of Serps - 'contracted out' in the jargon - will continue to be opted out of S2P unless they choose to go back in.
However, insurance companies and actuaries now say that most people - particularly older ones and the lower-paid - should consider going back into the state system. This is because the benefits are now better, as well as being guaranteed, while personal pensions rely on an unpredictable stock market. If you are opted out and want to get back in, you can only do it for future years. You cannot retrospectively settle up for previous years.
"Seems like your pension planning advice is best, that from a commercial solicitor based in the City of London !”.
Dr J. L. Gloucestershire
