R04 Chapter 9

Question 1

Retirement pre 6 April 2016: What comprises state pension benefits?

Answer 1

The Basic State Pension and possibly an Additional State Pension.

BSP is non-means testes, payable from SPA to the employed, self-employed, and other people who had sufficient NCIs. The full single person’s BSP for 2023/24 is £156.20 per week.

Question 2

How to qualify for the Category A Basic State Pension?

Answer 2

Between 6 April 2010 and 6 April 2016, you would qualify if you had at least 30 qualifying years. If you had less, you’d be credited with a proportion of the full BSP for each qualifying year.

Question 3

What is a category B Basic State pension?

Answer 3

1. Dependant (husband, wife, or civil partner) who reached SPA with less than 18 qualifying years may have been able to claim an additional income known as Category B pension.

Question 4

What’s the full rate of Category B Pension for 23/24?

Answer 4

£93.60 per week but only paid if the spouse/civil partner whose NIC record was being used was entitled to a full category A pension when they reached their SPA.

If they were not, the B pension would be reduced proportionately.

Question 5

What is the Additional State Pension?

Answer 5

People reaching their SPA pre 6 April 2016 may also be entitled to the Addtitional State Pension.

Question 6

What does the Additional State Pension consist of?

Answer 6

1. Graduated Retirement Benefit (GRB), accrued between 6 April 1961 and 5 April 1975
2. State Earnings Related Pension Scheme (SERPS), accrued between 6 April 1978 and 5 April 2002
3. State Second Pension (S2P), accrued between 6 April 2002 and 5 April 2016

Eligiblity for GRB and SERPS was based on Class 1 NICs paid by employees.

S2P eligibility was based on Class 1 NICs paid by employees and credits for Class 1 NICs received by those claiming certain benefits.

Neither of these were available to self-employed people.

Question 7

What are the rules for the New State Pension?

Answer 7

1. For people reaching SPA on or after 6 April 2016
2. Need a minimum of 10 qualifying years to get any New State Pension
3. The full rate in 23/24 is £203.85 per week and this will increase with triple lock
4. For the full SP, individuals need at least 35 qualifying years
5. A higher pension may be paid if the individual has any entitlement to the Additional State Pension (i.e. GRB, SERPS, S2P) accrued pre 6 April 2016
6. Class 1, 2 and 3 NICs all accrue the new state pension at the same rate

Question 8

What’s the full rate of the New State Pension?

Answer 8

In 23/24 it is £203.85 per week.

Question 9

Can you accrue State Pension Benefits while working abroad?

Answer 9

Yes. Rules are different. You need a certificate from HMRC. You or your employer need to apply. You need to meet one of these conditions:
1. Working in the EU temporarily for up to 2 years
2. A multi-state worker working in the UK and one or more EU contry
3. A civil servant working for the UK government
4. Working aboard a vessel at sea, with a UK flag
5. Working as a flight or cabin crew where the airline’s home base is UK

Question 10

What is the starting amount?

Answer 10

Also known as foundation amount. For people who haven’t reached their SPA on 6 April 2016.

Calculated as at 5 April 2016. It is the HIGHER of these 2 calculations:

1. Entitlement under the pre-6 April 2016 State Pension rules - total benefits accrued under BSP and Add State Pension, with a deduction to account for any contracted out years. If total exceeds £155.65 per week then excess is a protected payment.
2. Entitlement under the new State Pension - Calculated as if the new State Pension has been in place at the start of their working life with reductions where they were contracted out. Total CANNOT be greater than £155.65 per week

Question 11

What is the protected payment?

Answer 11

The different between the individual’s starting amount and the full new State Pension.

When they reach their SPA, their protected payment will be paid on top of the new State Pension and it will rise in line with CPI increases.

Question 12

What happens if the individual’s starting amount is equal to the full level of the new State Pension?

Answer 12

Likely to be older workers who have:
1. Worked most of their life as low earners
2. Been self-employed for most of their working life
3. Spent significatn periods receiving NI credits

They will receive the full new State Pension once they hit their SPA. They don’t get any extra State Pension even if they add more qualifying years to their NIC record.

Question 13

What happens if the individual’s starting amount is less than the full level of the new State Pension?

Answer 13

People in this category were (as at 5 April 2016) either:
1. Many years from SPA, having spent few years in work or receiving NI credits OR
2. Older people, closer to SPA, who spent a lot of time contracted out of the Additional State Pension

They can build on their starting amount by adding qualifying years to their NIC records between 6 April 2016 and theur SPA. Their new State Pension entitlement will increase by 1/35th of the full amount of the new State Pension per week for every extra qualifying year gained.

Question 14

What happens if the individual’s starting amount is more than the full level of the new State Pension?

Answer 14

People in this category were (as at 5 April 2016) likely to be older workers who:
1. Spent majority of their working lives in work
2. Were less likely to have contracted-out of the Additional State Pensoon for a significatn period

They will get the full new State PEnsion and an amount above this as a protected payment when they reach their SPA. They won’t get anything more.

Question 15

How does the State Pension work?

Answer 15

Pay-as-you-go. There’s no underlying fund. NICs lf the current working population are used to pay the State Pension of those who have reached their SPA.

Question 16

How to accumulate new State Pension entitlement?

Answer 16

Accumulated through Class 1 NICs (for employees), and Class 2 NICs (for self-employed).

Class 4 (also self-employed) don’t contribute to new State Pension entitlement.

Entitlement is based on qualifying years. A qualifying year is 52 weeks of Class 1 and/or Class 2 NICs paid in a tax year. You can also pay voluntary Class 3 NIC to cover any gaps in your record.

Question 17

What are NIC credits?

Answer 17

People may receive these if they satisfy certain conditions. They are awarded if the individual receives certain State Benefits like Carer’s Allowance, Employment and Support Allowance, and Statutory Maternity, PAternity, or Adoption Pay.

Question 18

What are Class 3 NICs?

Answer 18

Voluntary. Can be paid by people with a lacking NIC record to increase their entitlement to the new State Penson. Generally if this is opted for, these should be paid within 6 years of the period where the NIC shortall occurred.

Payments can be made after reaching SPA but only to cover shortfall that occurred prior to reaching SPA.

Question 19

What are Class 3A NICs?

Answer 19

Only available between 12 October 2015 and 5 April 2017. Income purchase by making these, increases in payment in line with the CPI. It also provides a 5% surviving spouse/civil partner’s oension on the death of the individual who purchased the income.

Taxed as pension income.

Question 20

What’s the difference between Class 3 NICs and Class 3A NICs?

Answer 20

Class 3: Increase the number of qualifying years, allowing the achievement of a higher level of New State Pension

Class 3A: Allowed an individual to pruchase a higher level of Additional State Pension, a type of pension paid where someone had built up benefits to SERPS or S2P.

Question 21

How does the new State Pension and BSP increase?

Answer 21

Each year in April. Increased by the higher of earnings, measured by the increase in average weekly earnings, prices, and 2.5% (so-called triple lock). The change in earnings is measured over a 12 month period, but in this case to the previous September.

Question 22

Can you defer the State Pension?

Answer 22

Yes. Both at the point when it’s supposed to begin, and even once already in payment.

Question 23

What rules apply to deferment for people reaching SPA before 6 April 2016?

Answer 23

1. If you defer for at least 5 weeks, you can receive a higher weekly pension in return
2. Where deferral is taken as a higher income, their State Pension will inrease by 1% for every 5 weeks of delay
3. Delaying for at least 12 months - you can receive a higher weekly State Pension or a lump sum payment
4. If lump sum is selected, the payment received is based on the payments that were deferred, with weekly compound interest added at 2% above the BoE base rate

Question 24

What rules apply to deferment for people reaching SPA on or after 6 April 2016?

Answer 24

1. Deferral needs to be for at least 9 weeks to receive any increase in income
2. Rate of increase during deferral has been reduced to 1% for every nice weeks deferred.
3. No option to take the deferred amount as a lump sum
4. Not possible for a surviving spoude to inherit deferred State Pension, although the deceased’s estate may claim up to 3 months worth of arrears

Question 25

How is the State Pension taxed?

Answer 25

Tax is never deducted directly from the State Pension.

For tax purposes it’s treated as pension income.

If total taxable income from all sources (State pesion, other pensions, savings, investments) is below the personal allowance then no tax is owed and State Pension is paid gross

But if total income exceeds the personal allowance, then tax on the State Pension is collected in 1 of 3 ways:
1. If there’s income received from another pension, the tax owed on the State Pension is collected from the other pension using PAYE via tax code adjustment.
2. If not in receipt of another pension but still working, tax owed on the State Pension is collected through their employer’s PAYE scheme
3. If not working and there’s no other pension, then tax owed is collected via self-assessment tax return

Question 26

What death benefits are available for state benefits?

Answer 26

Where a spouse/civil partner dies the survivor may be able to receive the Bereavement Support Payment where the following are met:
1. The deceased spouse/civl partner must have paid Class 1 or 2 NICs for at least 25 weeks in any one tax year prior to their death OR their death must have been a result of a work-related accident or illness caused by their job
2. The surviving spouse/civil partner must be under SPA and living in the UK or a country that pays bereavement benefits

Question 27

What are the 2 rates of Bereavement Support Payment?

Answer 27

Higher rate: £3,500 initial payment, and £350 per month for a max of 18 months

Standard rate: £2,500 initial payment,and £100 per month for 18 months

Question 28

What is the State Pension Credit?

Answer 28

A means-tested welfare benefit designed to give individuals and couples a minimum level of income in retirement. It’s not depenent on NIC contributions and no tax is payable on it. Consists of 2 parts: the Guarantee Credit and the Savings Credit.

Question 29

What is the Guarantee Credit?

Answer 29

To make a claim, the claimaint would have to reach the Pension Credit Qualifyin Age (same as their SPA).
Since 15 May 2019, where the claimaint is part of a couple, then the claimaint AND their partner must have reached Pension Credit Qualifying Age.

Question 30

How much is the Guarantee Credit Threshold?

Answer 30

For 23/24 - £201.05 per week for an individual and £306.85 per couple.

Question 31

How to be eligible for the Guarantee Credit?

Answer 31

A calculation is done based on the individual’s/couple’s income and capital. If total income this produces is below the thresholds then the guarantee credit is paid so that the income plus Guarantee Credit reaches the threshold.

Question 32

What is the Savings Credit?

Answer 32

For individuals who reached SPA before 6 April 2016 and who have also reached age 65 may be entitled to receive Savings Credit if they were already receiving this before 6 April 2016 have not stopped being eligible for it.

Question 33

Who is eligible for Savings Credit?

Answer 33

One or both of a couple:
1. Reached age 65
2. Reached SPA pre 6 April 2016
3. Was entitled to Savings Credit immediately before 6 April 2016
4. Is entitled to Savings Credit at all times following 6 April 2016

In 23/24, it’s worth £15.94 per week for an individual, and £17.84 per week for a couple.

Question 34

How to establish Pension Credit entitlement?

Answer 34

Income is calculated. Includes income from:
1. State Pensions
2. Private Pensions
3. Earnings
4. Most Social Security benefits
5. Savings over £10,000

Any savings are deemed to provide an income of £1 per £500, or part £500 of savings in excess of £10,000
e.g. Savings in an ISA worth £16,650

16,650 - 10,000 = 6,650/500 = 13.3 rounded up to £14.