Flat-rate pension: more readers’ questions answered

Readers have bombarded us with queries about how the new flat-rate pension will work. It appears that many stand to lose out when the new pension system comes into force in 2017. We have enlisted expert help to answer your questions. An earlier selection appears here.

A number of readers said they had retired, or left the workforce through redundancy, but were told at the time that they would be entitled to a full state pension, as they had 30 years’ National Insurance contributions (NICs). Now, if their state pension age is after 2017, they need 35 years’ NICs to get a full pension. The email below is one of many we received on this topic.

I was born in 1955 and retired from full-time teaching with a final salary pension aged 52 years. I am now part-time and self-employed, and have not yet taken my pension, as I do not qualify until the age of 60 years. I qualify for my state pension at the age of 66 years, I believe. Currently, I have 30 years’ service so am expecting to achieve the full single person pension. Am I now to understand this will be reduced as I have not earned 35 years’ entitlement? What if anything can I do to change this situation?

It is difficult to say at the moment what your entitlement will look like. Your qualifying years will count towards the new single-tier pension, which is higher than the basic state pension you would normally be entitled to. So even though you may get 30 35ths of the single tier, this still may be more, in pounds and pence, than you would get from the full basic state pension today.

However, if you are still working and paying NICs on your earnings, this should count towards your pension.

But there is a complication: an adjustment will also be made for the years you were contracted out of the state pension through your teacher’s final salary scheme, and hence paid less NI. The details of this adjustment have not been released yet, though we think it unlikely that the adjustment will reduce anyone’s pension below the level of the current basic state pension.

I have made 30 years’ contributions, and now work unpaid in China. I checked that my contribution would give me a 100pc state pension when I retire. Will this now change? I was born in 1953.

If you were on course to get the full basic state pension you should get at least this amount, possibly more. You will have at least 30 years of NI contributions, which will entitle you to 30/35ths of the new single-tier pension – about £123. However, an adjustment may be made if you have ever contracted out of the additional state pension, though we think it unlikely this adjustment would take you below the level of the basic state pension.

I was born in 1955, worked for 30 years, was made redundant in 2001, haven’t worked since, nor have I claimed unemployment benefit. Under the old scheme I would have qualified for a full pension, but I now believe you have to have made contributions for 35 years to receive a full pension. More worryingly, I have also read that unless you have paid contributions in the last 10 years before retiring you won’t qualify for a pension at all. Is this correct? This will also affect my husband in the same way.

If you were on course to get the full basic state pension you should get at least this amount, possibly more. You will have at least 30 years of NICs, which will entitle you to 30 35ths of the new single-tier pension, which as stated above is about £123 a week – compared with the current basic state pension of £107.

There is nothing preventing you from claiming your entitlement if you haven’t contributed in the 10 years before reaching state pension age. It is likely you will need to have made NICs for between seven and 10 years to qualify for a state pension, but these don’t have to be within the last decade.

I am currently drawing a state pension which is index-linked by a minimum of 2.5pc or CPI, whichever is the larger. My pension is currently £120.20 a week. My wife also has her state pension in her own right and which will be slightly more than the flat-rate pension by the time it comes into being. Will we both continue to be index linked under the current system for the foreseeable future, or has the Government plans to reduce our pensions?

The basic state pension and the new single-tier pension will be indexed based on the triple lock of 2.5pc, earnings or CPI, whichever is highest. Additional state pension (also known as S2P or Serps) will be indexed by CPI alone. The chances are, therefore, that most of your entitlement will be indexed according on the triple lock, but some will be linked to CPI alone.

I was able to defer my state pension for five years and thus collected an enhanced weekly amount of nearly 50pc above the basic. Will I get the same enhanced amount when the new system kicks in?

Individuals who reach the state pension age before the implementation of the single-tier pension will continue to draw their entitlement as is, including any enhancement due to deferring. If you defer your state pension beyond the implementation date you will receive benefits under the current system, not the new single-tier one.

I was widowed at 38 when pregnant with my first child and have only worked part-time since as my son was born with a disability and needed me. It has been suggested that widows could lose out as they will no longer be able to inherit from their husband’s record. Can you please confirm whether this is true and I am going to be so much worse off?

In addition my pension forecast stated that if I put off claiming my pension until August 31 2018, I would get an extra £30.02 per week, giving me a total that is far more than the £144 single-tier pension. What will happen to that forecast now? It looks like I will miss out enormously. It is all very upsetting.

There will be transitional arrangements to recognise shared or inheritable additional state pension in the current system. The documents states that widows, widowers and surviving civil partners may inherit additional state pension if the deceased died under the state pension age. This would suggest the inherited pension will be protected.

Although your state retirement age is in 2018, after the new rules come into place your entitlement to a higher pension under the current scheme should be protected under the transitional arrangements.

I receive my pension in 2014. Do I receive the new pension rate in 2017? I have 35 years’ NICs.

No, those already in receipt of a pension should be unaffected by these changes.

I have 29 years’ contributions and decided a while ago to make no further voluntary contributions, as the cost became prohibitive. We are living in Greece, and have no paid employment, but my husband has a pension from his company and will be 65 in 2015 so will, presumably, receive the state pension under the old rules.

Is there any indication at what point it will be necessary for me to start making contributions again (if we can afford it)? I won’t receive the state pension until I’m 66, as I am 53 now.

Your husband’s state pension will be paid under the current rules. You can make additional contributions to buy back any of the past six years. You can do this when you wish; however, sooner may be better than later as the cost of buying additional years may go up, because you will be buying a higher pension under the new single-tier arrangements.

I am living in Cyprus and am 58 years old. In 2007 I requested a pension forecast from the UK and was told that I would be entitled to one third of a basic state pension when reaching retirement age at 65 in 2019 as I had paid 10 years’ contributions – one third of the qualifying 30 years. Will the new reforms affect my entitlement?

You are likely to receive 10 35ths of the new single-tier pension, adjusted for any periods you were contracted out of the additional state pension, or one third of your basic state pension, whichever is higher.

Answers from Laith Khalaf and Danny Cox of Hargreaves Lansdown, who said their responses were “based on our understanding of current proposals, which are subject to change”.

Source of article: The Telegraph, Emma Simon, 16.1.13

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