2 : 5 - State Pension Schemes

Question 1

Who is eligible to build up benefits?

Answer 1

All individuals aged between 16 and 65 (currently)

Question 2

What is the SPA for men?

Answer 2

Currently 65

Question 3

What is the SPA for women (born after 5 April 1950 and before 6 December 1953)?

Answer 3

Between 60 and 65

Question 4

What will the retirement ages (for both men and women) increase to between Nov 2018 and Oct 2020?

Answer 4

66

Question 5

What will the retirement ages (for both men and women) increase to between 2026 and 2028?

Answer 5

67

Question 6

What will the retirement ages (for both men and women) increase to between 2044 and 2046?

Answer 6

68

Question 7

What determines how much an individual gets?

Answer 7

It depends on how many years of NICs they have made over their working lifetime.

Question 8

How many years of contributions are required to qualify for the full amount?

How?

Answer 8

30 years.

Either by working, being credited while caring for a family, or voluntarily paying to make up missed years.

Question 9

How much must an individual earn to pay NIC?

Answer 9

Individuals must earn over the primary threshold (£162.00 per week for 2018–19).

Individuals are credited with NICs if they earn over £116.00, but less than £162.00 per week.

Question 10

What are common examples of NIC credits?

3

Answer 10

• receiving certain state benefits, such as statutory sick pay, statutory maternity pay, Jobseeker’s Allowance (JSA)
• being in full-time education between 16 and 18 (note, university years are not credited)
• unemployed men who have turned 60 (without the need to sign on to receive JSA).

Question 11

Individuals may now be credited with having paid NICs, if they are:

(6)

Answer 11

• incapable of work because of illness or disability
• receiving Carer’s Allowance
• getting working tax credit
• doing jury service
• serving a prison sentence for a conviction, which was subsequently quashed
• parents looking after children up to the age of 12, and carers who provide at least 20 hours of care per week.

Question 12

What is the ‘Triple Lock’?

Answer 12

The 3 factors that determine the increase in the state pension (highest of the 3 is used)

Question 13

What is the state pension linked to?

Answer 13

the HIGHEST of:

• earnings – the average percentage increase in UK wages during that year
• prices – the percentage the cost of living increases by that year (consumer price index (CPI))
• 2.5% – fixed-rate increase.

Question 14

What did the State Second Pension (S2P) replace in 2022?

Answer 14

State Earnings Related Pension Scheme (SERPS)

Question 15

What is the purpose of the State Second Pension (S2P)?

Answer 15

S2P is earnings-related (similar to SERPS).

The aim of S2P is very much to help the lower-paid, certainly in comparison with the SERPS benefit. The key to this was the introduction of a LET, a notional figure of earnings used for those earning above the LEL but below the LET.

Question 16

What are the 2 bands of accrual?

Answer 16

• Band 1 – flat rate.

* Band 2 – earnings between the LET (£15,300) and the UAP (£40,040).

Question 17

What’re the accrual rates on the bands?

Answer 17

• Band 1 – benefit is a flat rate of £93.60 pa. As previously mentioned those earning less than the LET are treated as though they had earned the LET.
• Band 2 – earnings between the LET (£15,300) and the UAP (£40,040). The accrual rate is 10% for earnings within this band.

Question 18

What is the 3 step process for calculating the S2P?

Answer 18

• Earnings for each tax year from 2002–03 onwards are split across the bands and revalued from the tax year in question up to the tax year before the individual reaches SPA (earnings in the tax year before SPA are not revalued).
• The revalued earnings at SPA in each band are then multiplied by the accrual rate applicable to that band.
• These revalued earnings are divided by the total number of years in the individual‘s working life since 1978 to give the S2P benefit. Working life is defined as being from age 16 to SPA.

Question 19

What are the 2 elements that make up State Pension Credit?

Answer 19

Guarantee Credit + Savings Credit

Question 20

What does State Pension Credit provide?

Answer 20

To give each individual in the UK a guaranteed minimum level of weekly income with, possibly, a little extra based on previous savings.

Question 21

What does the Guarantee Credit provide?

Answer 21

This tops up your weekly income to £163.00 for single people and £248.80 for couples

Question 22

What is the qualification criteria for Guarantee Credit?

Answer 22

• live in the UK
• have reached Pension Credit qualifying age (the same as SPA) if a woman
• have reached the SPA of a woman born on the same day as them if a man
• have weekly income below £163.00 if they are single and £248.80 if a couple
• if they are a carer, have severe disabilities or certain housing costs, they might qualify for more Guarantee Credit.

Question 23

What does Savings Credit provide?

Answer 23

This is a reward for those with a modest income and who have saved for retirement.

Question 24

How is Savings Credit calculated?

Answer 24

For every £1 by which your income exceeds the Savings Credit threshold (£140.67 for a single person in 2018–19 and £223.82 for a couple), you get 60p of savings credit.

• So, say you have an income of £122.30 a week from the basic state pension, and an income of £32.05 a week from a private pension, your total weekly income would be £154.35.
• Your weekly income is £13 over the Savings Credit threshold. This means you would qualify for £7.80 per week of Savings Credit.

Question 25

What is the maximum savings credit you can get per week?

Answer 25

£13.40 for a single person and £14.99 for couples.

Question 26

What is the difference between Class 3A NICs and Class 3 NICs

Answer 26

While both are paid on a voluntary basis, they purchase different types of state pension:

Class 3 NICs allow an individual to increase their number of qualifying years, thereby allowing them to achieve a higher level of BSP.

Question 27

When does the Savings Credit element of Pension Credit close?

Answer 27

It is closed for individuals reaching state pension age on or after 6 April 2016.

Question 28

What is the Bereavement Support Payment?

Answer 28

The Government consolidated payments designed to provide assistance following bereavement into a new benefit, known as the Bereavement Support Payment. This may be payable if a spouse or civil partner dies on or after 6 April 2017.

Question 29

Who is eligible for the Bereavement Support Payment?

Answer 29

To be eligible, the spouse or civil partner who has died must have paid NICs for at least 25 weeks or died because of an accident at work or a disease caused by work. The person must be under state pension age and living in the UK or another country that pays bereavement payments.

Question 30

How much does the Bereavement Support Payment pay out?

Answer 30

The amount that the surviving spouse will receive depends on their circumstances. For those with children under 20 in full-time education, the surviving spouse will receive a first payment of £3,500 followed by payments of £350 per month for 18 months. If the surviving spouse or civil partner does not have children under 20 years old in full-time education these amounts are reduced to £2,500 and 18 monthly payments of £100. The payment must be claimed within three months of the death although it will be payable if claims are made up to 21 months but the payments will be reduced.