2. State Pension Provision

Question 1

What are the 4 bands of Class 1 NI?

Answer 1

Lower earnings limit
Primary earnings threshold
Secondary earnings threshold
Upper earnings limit

Between lower & primary - not paying NI but credited with conts

Question 2

Describe Class 2, 3, 4 NI

Answer 2

2; pre-24 weekly flat rate for self-employed. Now voluntary

3; voluntary flat rate

4; self-employed, % of profits
- none below lower profits level
- lower rate above upper profits limit

Question 3

Key features of New State Pension:
- eligibility
- NIC period
- deferral

Answer 3

Reaching SPA after Apr16
Min 10yrs NIC, 35yrs for max (scaled if between)
Can defer post-SPA; increases by 1% per 9 weeks

Question 4

How are those with an NIC record at Apr16 treated?

Answer 4

Starting amount, calculated as higher of:
- amount they would have received under old state pension
- amount they would have received from new state pension had it been in place forever (less any time contracted out)

Question 5

Key features of Basic State Pension:
- eligibility
- NIC period
- deferral

Answer 5

Reached SPA before Apr16
- > 80yo receive add’l 25p/wk
Min 1yr NIC, 30yrs for max
Can defer; increases by 1% per 5 weeks

Question 6

What is the state pension eligibility for ex-pats?

Answer 6

Fully eligible but value freezes when emigrate unless continue to live in UK for > 6m p.a, in which case increases in line with inflation

Question 7

Key features of State Earnings-Related Pension Scheme (SERPS)
- effective period
- rate

Answer 7

Replaced graduated pension scheme in 1978
Replaced by S2P in 2002

25% boost for earnings between lower and upper earnings limit
- revalued in line with average earnings
- gradually reduced to 20% from 2000

Question 8

Key feature of State Second Pension (S2P)
- effective period

Answer 8

Replaced SERPS in 2000
Ended 2016

Additional pension for low earners, carers and disabled

Question 9

What was the timeline for phasing out contracting out? (3)

Answer 9

Pre 2012; could contract out
2012-2016; only contract out through DB scheme
Post 2016; contracted back in

Question 10

Describe Pension Credit:
- tax treatment
- 2 types
- changes in circumstances

Answer 10

Tax-free top up if low pension

Guarantee Credit:
- eligible if weekly income < “appropriate amount”
- credit tops up to this amount
- savings >£10k deemed to contribute £1 /wk per £500 as income

Savings Credit:
- eligible if reached SPA pre-2016 i.e basic state pension

Changes in circumstances must be reported unless in Assessed Income Period