Chapter 1 - Pensions Planning & Advice

Question 1

Explain the evolution of the state pension.

Answer 1

1908 Old Age pension act brings a pension for those over 70 and is means tested pays between 10 & 25p. Came into effect 1909 and was called Pensions Day.

In 1921 tax relief was introduced in certain cases.

In 1925 the pension age was reduced to 65 and paid 50p per week.

In 1946 the national insurance act introduced a contributory state pension for all. Pension was £1.30 per week for a single person and £2.10 for a married couple. 65 for men and 60 for women and was payable from 1948.

1959 brought the graduated pension and SERPS in 75, coming into effect 1978. Both gave the ability to top up pensions.

Section 1.2.1 - Page 5

Question 2

What is the state pensions age (SPA) at present?

Answer 2

The state pensions age is currently 65 for men an between 60 & 65 for women born after 5 April 1950 and and before 6 December 1953.

Section 1.3 Page 5.

Question 3

What is the state pension age due to increase to in the coming years?

Answer 3

For both men and women it is due to increase to:

66 between December 2018 and October 2020

67 between 2026 and 2028

68 between 2044 and 2046.

Section 1.3 Page 5.

Question 4

In 2028 what is the expected SPA and minimum age in which you can access benefits from pensions?

Answer 4

SPA = 67

Minimum age to access pensions benefits = 57

Section 1.3 Page 5.

Question 5

What happened to the retirement age of women in 2011?

Answer 5

There was a transitional period in order to equalise the retirement age between men and women.

This was controversial as not a great deal of notice was given so people did not have a lot of time to prepare.

Men & women who are effected will likely have a phased state pension age.

Section 1.3. Page 6.

Question 6

What are the key features of the basic state pension (BSP)?

Answer 6

1) Non-means tested
2) Ages 16 to 65 eligible to build up benefits.
3) Two categories of contributions - A & B.
4) Full category A for those in retirement £129.20 per week in 19-20.
5) Amount received depends on the number of years NIC contributions. To qualify for full pension 30 years NICs need to be paid.
6) You can pay to make up missed years.
7) BSP is protected by triple lock.

Section 1.4 Page 6

Question 7

What is a category B State Pension?

Answer 7

Category B State Pension is when a spouse or civil partner has there pension based on the others NIC record where they are receiving a category A pensions.

Full entitlement is half of the category A (£77.45 per week). If category A spouse was due 80% category B spouse would get 80% of half.

Section 6. Page 1.4.1

Question 8

What is the full entitlement of the category B state pensions?

Answer 8

Full entitlement was £77.45 per week for tax year 19-20. This full amount is only paid to the spouse if there other half had a full pension. If the person with a category A pension had 80% of their pensions then the category B would get 50% of 80%.

1.4.1 Page 7

Question 9

What is the entitlement for a widows category B state pension?

Answer 9

Widows may be entitled to the full category B state pension if they were widowed prior to SPA and when widowed they were entitled to another benefit such as bereavement allowance.

It was only possible for spouses to claim category B pension since 6 April 2010.

1.4.2 Page 7

Question 10

When was the state graduated pension scheme running?

Answer 10

The scheme ran from the 3rd of April 1961 until the 5th of April 1975.

1.5 Page 7

Question 11

The State Graduated Pension Scheme was only available to both employees and the self-employed. True or False?

Answer 11

False - The State Graduated Pension Scheme was not available for the self employed.

1.5 Page 7

Question 12

How was were contributions to the State Graduated Pension Scheme calculated?

Answer 12

It was calculated to how many units of the SGP had. For men £7.50 paid into the scheme resulted in one unit of graduated pension.

For women £9 paid into the scheme buys them one unit.

It was the first earnings related related pension scheme to provide benefits in addition to the basic state pension although the benefits paid were very small and it was only paid to people who reached retirement age before 6th April 2016.

1.5 Page 7

Question 13

What can a widow/Widower receive of the deceased’s state graduated pension?

Answer 13

They could have received half of their late partners graduated pension when they reach SPA.

1.5 Page 7

Question 14

Was it possible to contract out of the state graduated pension scheme?

Answer 14

Yes - many occupational schemes did so and provided members with an amount known as an equivalent pension benefit EPB.

1.5 Page 7

Question 15

What was the pension that followed the state graduated pension scheme?

Answer 15

SERPS - State Earnings Related Pension Scheme.

1.6 Page 7

Question 16

When was SERPS available?

Answer 16

SERPS was available between 6th April 1978 until 6 April 2002 for anyone who paid Class 1 NICs in this period.

1.6 Page 7

Question 17

What employees were eligible for SERPS?

Answer 17

It was available for those who earned over the lower earnings limit (LEL). The benefit itself was calculated on an individuals earnings between the LEL and the upper earnings limit (UEL).

This is sometimes referred to as middle band earnings.

1.6 Page 7

Question 18

How was SERPS calculated for people who retired before the 6th of April 1999.

Answer 18

For people who retired before this date the SERPS entitlement was a maximum of 25% of revalued middle band earnings. Using an individuals best 20 years of earnings.

This meant SERPS accrued 1/80th or 1.25% in respect of each years upper band earnings from 6 April 1978 to state pension age. The National Average Earnings Index (NAE) was used to re-value earnings in earlier years up to SPA.

1.6 Page 7

Question 19

What happened to SERPS in 1988?

Answer 19

The benefit level was considered as being too high and it was announced that employees retiring after 6th April 2019 the benefit would be reduced from 25% to 20%.

Rather than being the best 20 years of earnings, it was an individuals revalued life earnings would be used to calculate the benefit.

The reduction was phased in over a ten year period but was overtaken by the introduction of the state second pension S2P.

1.6 Page 8

Question 20

Can a widow/widower inherit anything from SERPS?

Answer 20

Yes they can when they reach SPA.

The maximum amount of benefit received is dependant on whether the benefit was in respect of a deceased man or woman.

There is a sliding scale, when the individual is older the remaining spouse will receive a greater amount of pension.

1.6 Page 8

(It may be worth memorising the scale)

Question 21

When did the second state pension (S2P) replace SERPS?

Answer 21

6th April 2002.

It is still not available for the self employed although it does include certain carer’s and disabled people even if they have no earnings.

1.7 Page 9

Question 22

Is S2P better for higher earners of those on a lower income in comparison to SERPS?

Answer 22

The calculation basis for S2P is more favourable to those on lower incomes.

It started out with three different accrual rates although it is now being moved towards a flat rate pension which is expected to come about in 2030.

1.7 Page 9