Sunday, 19 November 2017


Around 25,000 people in weekly paid low paid work who top their wages up with Universal Credit will get less benefit or none at all in the month leading up to Christmas. 

Universal Credit is supposed to make work pay. It uses real time information passed to Her Majesty's Revenue & Customs (HMRC) by employers to adjust the benefit each month according to how much income is earned. So the Department for Work and Pensions (DWP) should know immediately if income changes in the month it is assessed over.

The underlying problem for weekly paid people is that weekly into monthly doesn't go exactly and they tend to budget weekly when the bulk of their money comes in, not monthly as the Department would like them to.

Jane lives in Altrincham with her daughter Zoe aged 5. After her well-paid partner left her she claimed Universal Credit on 9 September 2017. Her assessment period started seven days later (the infamous waiting period) and thus ran from 16 September to 15 October. She then had to wait seven days for the benefit to be credited to her bank account. It arrived on 22 October and will do so on the 22nd of every month. 

She is paid weekly and her earnings are constant so she expects the same amount of UC each month. In fact the amount she gets each month will depend on her income in the assessment period which runs from 16th to the 15th of the month. 

Jane works 40 hours a week at £12.50 an hour. Her Mum looks after Zoe outside school hours. In October and November she got £220 UC which was a great help. Her December payment is due on 22 December and she is glad it will come just in time for a late Christmas shop and stop her getting overdraft charges. Her employer pays her weekly on a Friday. In assessment period leading up to her her December payment she is paid on 17 and 24 of November and 1, 8, and 15 of December. Those five pay packets mean her income is 25% more than it was in the four pay packet months of October and November. That is enough to stop her entitlement to Universal Credit in December.

Although she has had extra income from her job in that assessment month her weekly pay is always earmarked to pay £520 a month rent, food, utility bills, council tax, and travel to work costs. She was counting on the usual Universal Credit payment to top up her earnings on 22nd to give her a bit more for her children after Christmas. When it is zero Jane has to abandon those plans as she budgets weekly and is not sure why the payment has stopped. 

Chris is 22 and moved to Southend-on-Sea in the summer to get a job working 38 hours a week on £7.05 an hour minimum wage. Chris had been homeless and in a hostel for some months. He rents a one bedroom flat which is allowed in those circumstances under Universal Credit rules. After tax his pay is £245 a week, nearly half of which goes to pay his rent. So when he is told he can get Universal Credit he is very pleased. He claimed it on 9 September too and was puzzled he had to wait so long for any money. But nearly £140 arrived in his bank account on 22 October and was very helpful, not least to pay back some money his work mates had lent him during his six week wait. The same amount arrived on 22 November and friends told him he would now get that every month. But it did not arrive on 22 December. He thought it was late over Christmas but it was still not there when he went back to work on 27th. 

By the end of the week his boss said he should call the Universal Credit helpline and kindly let him use the office phone in his lunch hour. He was told the lack of a payment was correct as he was no longer entitled to Universal Credit. He now has to reapply for his benefit before 15 Jan to make sure he gets his next payment on time on 22 January. He has to do that online. When he first claimed he used the local library. When he finally gets a time slot to use a computer there he is told he needs his username and password which he cannot remember. After two goes he answers his security questions and can eventually log on and re-claim. Not everyone would be so lucky

Why it happens
The experiences of Jane and Chris are not errors. They happen because Universal Credit is assessed over a period of a month - from the nth day of one to the (n-1)th day of the next (If the assessment period begins in the last days of the month, then it assessed from the end of one month to the end of the next). So the assessment period can be 31, 30, 28, or 29 days. The money is paid into a bank account seven days later. In four out of the twelve months in the year people who are paid weekly will have five paydays. In the other eight they will have four paydays. When their income in the assessment period changes that alters the amount of their universal credit. In the periods when they have five paydays the benefit will be reduced and in some cases it will disappear altogether.

Neil Couling, the Director General of Universal Credit agrees. Responding on Twitter @neilcouling when I first reported this story, he tweeted
  • This so called problem would have occurred at Christmas 2013, 2014, 2015 and 2016. In fact it is just the system working as intended, adjusting to changes in household income.  
The same thing will happen to Jane and Chris four times every year. The next occasion will be the payment due on 22 April 2018, just after Easter. The effect is they will have to reclaim their benefit every four months. 

The latest figures from the Department for Work and Pensions (15 November 2017) show there are 250,000 people on Universal Credit who work and the DWP has told me that 67,000 of them are paid weekly. Every month about a third of those weekly paid people will find that they have five pay days taken into account and their money will be reduced. The DWP has confirmed it will happen to 25,000 claimants in December, as it will every month. For some, like Jane and Chris, the rise will be enough to wipe out their entitlement to Universal Credit. Others will just get less Universal Credit. The Department points out that their wages and their total income will be higher in five week assessment periods. That is strictly true. But as the first payday arrives on the 17th and the next on the 15th of the next month it is not much help when juggling regular outgoings on a limited weekly budget, especially over Christmas.

The DWP has also said in a @dwppressoffice tweet
  • UC payments adjust to people’s earnings so they get a stable income each month including over Christmas
But the figures show monthly incomes are not stable. Chris will have a total income from wages and benefit of £1122 in months with four weeks and £1229 in five week months - a difference of around £107 which is hardly stable. Jane's monthly income changes by £185.

The problem is recognised in the official explanation of payment cycles which confirms that people paid more frequently than monthly will face reduced or missing Universal Credit payments in some assessment periods.
  • You will need to be prepared for a month when you get 5 wage payments in one assessment period and budget for a potential change in your monthly Universal Credit payments.
As Neil Couling said in his tweet, this is how Universal Credit is supposed to work. Which does not of course make it right or convenient. But, again as the DWP and many welfare rights specialists say, it is a lot better than tax credits which are normally worked out on income a year in arrears.

If the benefit does vanish, the method for re-claiming is different depending on the Jobcentre where the claim was first made.
  • In Live Service areas (also called Gateway areas) the claim should just be rolled over automatically. It only ends if an individual is above the income limit to get some benefit for more than six consecutive months. Live Service areas will disappear by the end of 2018.
  • People in Full Service areas - like Jane and Chris - will have to reapply. This should be a simple online process and if done promptly the claim should be accepted and they should keep the same assessment period and payday.
The Jobcentre Plus or Work Coach should know which sort of area it is. It can also be checked on this website. If the benefit is reduced rather than extinguished it will be higher the next month.

Other payment periods
The problem does not just affect those who are paid each week. People paid fortnightly will have two months in the year in which they get three pay packets instead of two. Anyone who is paid four weekly will get two pay packets in a single month once a year. Even those paid monthly can be affected if their firm brings forward a payday to before a Bank Holiday, such as Christmas or Easter, and that means there are two monthly payments made in one assessment period. Tax rebates and payments from the Student Loans Company can also affect one month's benefit. In all those cases it is more likely than with weekly payments that the Universal Credit will be wiped out and a re-claim will be required in Full Service areas.

Roll out
As Universal Credit is rolled out across the UK during 2018 all areas will become Full Service areas. New claimants of working age benefits will normally have to claim Universal Credit rather than the old benefits such as Tax Credits, Housing Benefit and the income-related versions of Jobseeker's Allowance and Employment and Support Allowance. There are some exceptions but those will probably end from December 2018 when the roll out is complete. Note that the contributory versions of Jobseeker's Allowance and Employment and Support Allowance will still be available for up to six and up to twelve months regardless of income to people who have sufficient National Insurance contributions and fulfil other conditions.

In the run up to Christmas 2018 many more people will be affected by these five and four week paydays as the number of those claiming Universal Credit will have risen due to the national roll out for new claimants. After 2018 people already getting the old benefits will be moved in stages to Universal Credit. By 2022 everyone on the old benefits will have been moved to Universal Credit and an estimated eight million people will get it. On present figures that would mean 300,000 working people who are paid weekly would face a lower or missing UC payment in December if their Assessment Period has five paydays in it.

The calculation
Before the DWP provided a figure of 25,000 there was some dispute about how many people are in Jane's position. The calculation is fiddly but perfectly possible.
  • Take the 31 possible UC payment days in the month before Christmas from Friday 24 November to Saturday 23 December
  • Look at the corresponding 31 assessment periods which begin with 18 October to 17 November and end with 17 November to 16 December.
  • Count the number of work paydays (assumed to be Fridays) in those 31 assessment periods. There are 12 assessment periods with five Fridays and 19 with four Fridays. 
  • The proportion of assessment periods with five Fridays is 12/31 = 38.7%. With a total of 67,000 weekly paid Universal Credit claimants that gives the figure of 25,935 whose assessment period will have five paydays in it. 
  • Using different paydays there are either 10 (Sunday, Monday, Tuesday),11 (Wednesday, Thursday, Saturday) or 12 (Friday) assessment periods with five paydays. Friday is the most common payday so I used Friday. Using other paydays the number of those affected is 21,613 for 10 and 23,774 for 11. Those results are not unexpected. With 67,000 weekly paid and each being affected one month in four a simple average gives 22,333 affected each month.
  • The main assumptions are that weekly pay is constant and people are equally likely to apply on any day of the year.
The DWP now says 25,000 people had five weekly paydays in December. It cannot yet say how many will lose all and how many will some of their UC. The ones who lose it all will be those with UC payments that are relatively small.

Fiddly bits
There will be a very few people among those who have a 'work allowance' whose income from their job is so low that the extra week's pay will not reduce their Universal Credit.

People who lose all their UC payment in five week months but get some in four week months will end up over the year with more UC than if they were paid the same annual income but monthly. At lesat, they will if the make sure they reclaim the UC in time.

The DWP cannot at the moment say how many of those affected by the five week problem will lose all their Universal Credit and how many will lose only some of it.

The loss of Universal Credit in a month can affect entitlement to other benefits such as council tax support, free school meals, and free or cheaper NHS services. Some older NHS forms may not have a 'universal credit' box to tick to get the help even if it is available. If the DWP takes a third party deduction for rent arrears or other items these will also stop if there is no UC in a month to deduct it from.

In Scotland people in Full Service areas who claimed from 4 October 2017 can choose to be paid twice a month.

All employers do not pass the information on pay on to HMRC immediately and that can mean Universal Credit is - wrongly - assessed on reported income rather than income actually received.

Jane and Chris are exemplars, not real case studies. The numbers are rounded and may differ by a pound or two from the actual amounts they would get. All the figures have been checked with two or three sources. It is assumed that neither of them has savings or other income.

Jane and her erstwhile partner did not claim tax credits before he left her. Jane will also get Child Benefit and possibly maintenance from Zoe's father. Neither would affect her Universal Credit payment. Neither Chris nor Jane is entitled to help with their council tax - their incomes are too high.

version 2.1
20 December 2017

Saturday, 14 October 2017



Over the next three years every home and small business in the UK should have their electricity and gas meters replaced with new 'smart' meters. The plan is to put 53 million meters into 30 million homes and small businesses in England, Scotland, and Wales by the end of 2020. It is a challenging target. By the end of 2016 only 5 million smart meters had been installed in homes, split about 57:43 between electricity and gas. Although installations were running at nearly 1 million in the last quarter of 2016 it is clearly an ambitious target to to replace the remaining 45 million by the end of 2020. That would require one million meters a month between now and then.

The meters already fitted - and being fitted in 2017 - are an early model called SMETS1. These meters are being replaced with an upgrade called SMETS2. But by September 2017 no SMETS2 meters had been installed in customer premises. SMETS1 meters do not have interoperability between all suppliers (though some will work with a limited number of other supliers' equipment.

They use the existing mobile phone network for communications and each supplier has its own way of using it and transmitting data. People who have them will usually find that if they switch supplier their meter becomes dumb and has to be read manually. That is more difficult to do with 'smart' meters than it was with old meters designed for reading by a supple human with a torch.

It is hoped that the new SMETS2 meters - which are currently being tested - will start going into homes later in 2017. However, there are concerns that it may not be possible to upgrade the SMETS1 meters to SMETS2. If so millions of SMETS1 meters will have to be replaced. There is a review of the process which sets out a timetable and shows that SMETS1 will not be 'enrolled' into the DCC network until Autumn 2019. That timetable may have already started slipping.

What they do
I put 'smart' in inverted commas because these meters are not in fact very clever. They simply report back to the supplier how much electricity and gas the customer uses each day and, with the customer's permission, every half hour. More frequent reporting will be available in future.

The meter also feeds some information about current use to what is called an 'In Home Display' or IHD. The Government now says there will be one IHD which will cover both electricity and gas if you have it. It will normally be mains-powered and fixed in position but there will be an option for a separate portable battery powered unit. The IHD can show how much fuel is currently being used and can display the cost in £.p. Some of them will have a traffic light system - glowing green when consumption is low through amber to red when it is high. They can also do calculations of past and future use. Some reports suggest that if the IHD is switched off for any reason it is difficult or impossible to get it back online recording usage accurately.

The costs of the programme are fixed and fairly certain to happen, though the amount will probably rise. The latest cost/benefit analysis was published in August 2016. It estimates that manufacturing and installing 53 million meters, communication devices, and IHDs in 30 million premises will cost £5.44bn. There is also a new communications infrastructure network which will cost £3.13bn. That was due to be completed late in 2015 but was in fact not switched on until November 2016. The cost/benefit analysis puts the total costs of the programme over 18 years at £11bn (in 2011 pounds). We will all pay that through our energy bills which will cost more than £400 per household.

Those payments are beginning. In 2017 all major suppliers and some smaller ones have put up the cost of electricity by 10% to 15% and each of them blames that rise in part on smart meters.

Estimates of the savings are more speculative.

Customers will save money because they will use the information from the IHD to cut their energy consumption. That saving is put at £5.3bn over 18 years based on a 2.8% cut in electricity use and 2% in gas use.

Achieving those savings requires active engagement by customers. But many will not be engaged and will end up paying more. A report by the old Department for Energy and Climate Change on some pilot smart meter installations found that initially 96% used their IHD but about four out of ten disconnected them during the research. None were able to identify any clear savings due to the IHD. The Public Accounts Committee estimated in 2014 that customers would save on average about £26 a year.

Customers will also gain, if they choose to, by faster switching from one supplier to another. The process can take weeks now but a 24 hour service is promised. They will also gain if suppliers agree to monthly billing of actual usage rather than sending out estimated bills. It is not clear when either of these changes will happen.

Energy suppliers will save an estimated £8.25 billion. The biggest chunk - £3bn - will be from ending meter reading and other home visits. Reduced customer enquiries and complaints will save £1.2bn. Another £1bn will be saved by managing pre-payment customers better and there is a big saving of £1.4bn from reducing the cost of customers switching supplier. A further £1.2bn is savings made in managing debt and reducing theft.

Networks and the generators will save £1.8bn between them from smoothing the peaks and troughs of demand and generating less power.

Finally, carbon related benefits and air quality improvements will add £1.4bn to bring total savings to £16.7bn.

These figures are from the 2016 cost/benefit analysis and the technical annex and are in 2011 pounds. Actual costs in today's pounds could be 15% to 20% higher.

Who gains?
Less than a third of the savings will be made directly by consumers. And only for those who engage with the energy saving opportunities. Nearly 70% of the savings will go to the industry. The hope is, of course, that suppliers, generators, and transmitters of electricity and gas will pass some of those savings on. They may. But some of their savings - on debt management and prepayment meters for example - will come at a direct cost to the customers affected though they may be passed on to others. The savings from carbon reduction and air quality improvements will not be felt directly in the pocket by consumers.

So while the customers will pay for the £11 billion cost of the smart meter programme through their bills, the savings of £5.4 billion will be felt only by those who adjust their behaviour and and some of the remaining £11.3 billion only if the industry passes on its own savings to customers in lower prices.

The energy industry has a very poor record in passing on savings. In 2014 they took many months to pass any of the gains from the fall in the wholesale price of gas and none reduced electricity prices even though much of that is generated by burning gas.

Extra costs.
The impact assessment does not take account of one significant extra cost.

Bills will no longer be estimated as they will be based on actual usage over a month. That is promoted by the Government as good news for consumers. But it will be expensive for gas and electricity suppliers. For many years they have encouraged customers to agree to pay estimated bills monthly by direct debit rather than quarterly based on meter readings. The result is that the firms have kept hundreds of millions of pounds on their books belonging to customers. The value of that is shown by the fact that customers who pay a more accurate quarterly bill can be charged 7% extra or more more than monthly direct debit customers. If they no longer make that saving then prices will inevitably rise.

This money the suppliers routinely hang onto is separate from the £400m that Ofgem found they had wrongly kept when customers switched to another supplier. In February 2014 it ordered firms to refund this money. It does not bode well for hopes that the industry would voluntarily return to customers the savings it makes from smart meters.

Time of use
The report also makes no assessment of the costs or savings to be made from what are called Time of Use tariffs. Once the smart meter network is rolled out suppliers will start making customers manage the load, especially in electricity supply. In other words when demand is high the price goes up. When demand is low the price comes down. And with half hour reporting - and it may be more frequent in future - time of use tariffs could be very specific.

For example, energy could be more expensive between 7am and 9 am when most people are getting up, putting on the kettle, and making breakfast. Or between 5pm and 8pm when evening meals are being cooked. The result would be that poorer families could not afford to eat dinner at dinner time.

Ultimately the cost of power could rise during the adverts in soaps or the interval in football matches when millions put the kettle on make a cup of tea.

Time of use tariffs mean that the customer is drafted in to manage the national power load. By pricing people out of energy use at peak times the peaks and troughs of usage - so irksome to the engineers managing the grid - are smoothed out.

Debt and disconnection
Smart meters will also enable energy suppliers to manage debt and disconnection remotely. Customers can be switched from credit payment to prepayment by the supplier without changing the meter. It also means that if someone has not paid their bill then the supplier will be able to throw a switch and disconnect them. There are currently safeguards about who can be disconnected and when. But once the conditions are met the process is much simpler.

The delivery of this programme is in the hands of the six large and dozen smaller energy suppliers. They will each fit the meters for their own customers. Which could mean 18 different engineers visiting the same street or block of flats to do the same job in neighbouring homes.

The central Data & Communication Company (DCC) is run by Capita. It will be responsible for collecting the data sent back by smart meters and forwarding it to the right energy supplier, the networks and energy services companies. Others may also get access to it. In 2014 the Information Commissioner expressed concerns about the security and use of this data.

The data network will be run by two companies - Arqiva will cover northern England and Scotland using a long-range radio network and Telefonica UK will cover the rest of England and Wales using a cellular technology with what it calls 'mesh technology' to fill the gaps in the cellular network. The target is to cover 99.25% of dwellings - which will leave 225,000 premises unconnected. Apart from remote dwellings, tall buildings and multi-occupied premises are problems that have not been solved.

Meanwhile Smart Energy GB spent £38.5m in 2016 - which will rise to £49m in 2017 - to persuade us all that the smart meter programme is a good thing. What it calls building consumer awareness and understanding of smart meters and encouraging consumer engagement.£40m of that £49m in 2017 is for advertising, much of it using the Gas and Leccy characters.

Select Committee
On 7 March 2015 the Energy and Climate Change Select Committee expressed concerns about delays and unresolved challenges in the smart meter programme. "Without significant and immediate changes to the present policy, the programme runs the risk of falling far short of expectations. At worst it could prove to be a costly failure."

In December 2014 the Ontario auditor general Bonnie Lysyk said that the state's smart meter programme had cost twice its estimate and made few if any savings for customers or suppliers and failed to reduce energy consumption.

21 September 2017
vs 1.60

Monday, 9 October 2017


Some householders who get the new means-tested benefit Universal Credit will keep just 20p of every pound extra they earn – an effective tax rate of 80%. In some parts of England it could be more - losing up to 82.4p in every pound that is earned, leaving them with barely 17p for every extra pound they earn. Those losses could undermine the work incentives which the new system is designed to create. 

For graduates on incomes above £17,775 but low enough to get Universal Credit, the deductions would be more, adding about 2.5 percentage points to those figures. Worst case would be earn £1 keep 15.3p.

Universal credit
Universal Credit began to be rolled out from October 2013 to replace six means-tested benefits and tax credits. By 2020 it should apply to most new claims for help with income or rent. It is paid to people on low incomes who cannot work, are looking for work, or work on very low pay.

It is supposed to let people keep more of what they earn and thus boost incentives both to return to work and to earn more once in work. For every £1 extra earned the credit is reduced by 63p from April 2017 allowing the claimant to keep 37p. Before that it was 65p. This so called ‘withdrawal rate’ of 63p in the pound is said to be much lower than rates under the previous and allowing people to keep 37p of what they earn is seen as an incentive to work. However, that figure of 63p withdrawal rate is only accurate for people who earn less than £157 a week and are not householders.

Universal Credit is worked out after tax and National Insurance have been deducted. In 2017/18 anyone earning more than £157 a week will pay National Insurance and once they earn more than £221 a week income tax begins. Someone paying National Insurance will lose 12p in the pound before their Universal Credit is worked out. The total loss from NI and reduction in Universal Credit is just over 67p from each £1 they earn. So they keep less than 33p. If they pay income tax as well they lose just over 75p of each pound and keep just over 25p. The calculation were originally confirmed by Pensions Minister Steve Webb in Parliament in 2012 when the details were different. (Hansard, House of Commons, 11 September 2012, col.196).

But that is only part of the picture.

Universal Credit, despite its name, does not replace all means-tested benefits. It does not include the means-tested reduction in council tax which used to be called Council Tax Benefit but since 1 April 2013 has been replaced by a very similar scheme called Council Tax Support which is operated by local councils. Like all means-tested benefits Council Tax Support is withdrawn as income rises. The standard taper is 20p for each £1 rise in net income (after tax, NI, and Universal Credit withdrawal). In other words for each extra pound of net income help with council tax is reduced by 20p. The result is that for each £1 earned a total of 80p disappears in tax, NI, reduced Universal Credit, and reduced Council Tax Support. The calculation is at the foot of this blogpost.

In some areas of England and Wales the reduction for every £1 of income earned may be even higher. As part of the transfer to local councils the Government has cut the money it currently pays towards help with council tax. From 1 April 2013 councils get 90% of the money they got to pay Council Tax Benefit. The Government has already said that out of that reduced budget they will have to pay exactly the same benefit to anyone over pension age. Nearly half of all Council Tax Benefit recipients are pensioners so the other half – working age people who can claim Universal Credit – will bear the whole of the funding cut. That will mean a reduction for them of between 19% and 33% according to the Institute for Fiscal Studies ( chapter 5). 

Councils have now published the details of their schemes for the fifth year of local council tax support. In 2017/18 the great majority are keeping the taper at 20%. But 18 have a higher taper. Seven have raised it to 30%; another 12 to 25%, and one to 23% . Only three have cut it to 15%. The analysis is done by the New Policy Institute.

In areas which raise the Council Tax Support taper to 25% householders on Universal Credit who pay tax will find that 81p of each pound earned disappears in deductions. In areas with a 30% taper they will lose 82p and keep less than 18p for each extra pound earned in income tax, National Insurance, reduced Universal Credit and reduced Council Tax Support. In the three areas where the taper is 15% people will lose 79p of each extra pound. 

Students on plan 1 or plan 2 who pay in effect an extra 9% tax whose income is low enough to be entitled to Universal Credit lose typically 82.5p in the extra pound keeping just 17.5p. In areas where the council tax withdrawal rate is 30% they keep just 15p in every extra £1 they earn.

It is a tax
Some people object to the total deductions made from a means-tested benefit being called a 'tax'. They say that the reduction in a subsidy from taxpayers is not a tax. Tax, they say, mean a levy on your own money not a reduction in the money the state gives you. 

But it is a tax. And officially so. In his Spring Budget, 8 March 2017, Phillip Hammond confirmed that the tapered loss of this benefit was a tax. He confirmed the reduction in the taper rate by saying "the Universal Credit taper rate will be reduced in April from 65% to 63%, cutting tax for 3 million families on low incomes."

Losing 80% or more of each extra pound you earn is hardly an incentive to work or to work harder. It is almost twice the 42% tax and NI deductions for higher rate taxpayers with incomes over £45,000, three times the minimum wage.

Net after tax
UC reduction
Net after UC
CTS reduction
Effective tax

This blogpost replaces the one originally published 19 September 2012.

1 April 2017
Version 1.01



More than a million people who reach state pension age in the years from 6 April 2017 will not get the full amount of the new ‘flat-rate’ state pension - currently £159.55 and at least £163.55 from April 2018.

But many of them could boost their pension towards or up to the full flat rate amount.

This guide is for men born 6 April 1952 or later and women born 6 July 1953 or later who paid into a good pension at work or, in some cases, into a personal pension.

There are other groups who can boost their state pension. Separate links for them are listed at the end of this guide.

The new state pension was supposed to be simple. A flat-rate amount for everyone who had at least 35 years of National Insurance contributions. This year 2017/18 that amount is £159.55 a week (£8297) a year) and is taxable. However, there are around one and a half million people who will reach pension age in the next ten years who will get less than that even if they have 35 years or more National Insurance contributions.

That is because an amount is deducted from the pension for every year they paid into a good pension at work. I call it a contracted out deduction because they were ‘contracted out’ of part of the state pension called SERPS or State Second Pension (S2P). They paid lower National Insurance contributions and instead of that additional state pension they get a pension from their job which was supposed to replace it. The Government prefers to call it 'Contracted Out Pension Equivalent' or COPE. It is that COPE amount that is deducted from your new state pension.

This group includes most people who worked in the public sector, such as

  • nurses, doctors, and others in the NHS
  • teachers in schools and universities
  • police officers and fire brigade staff
  • civil servants
  • local government workers
  • armed forces
  • Post Office workers
It also includes many people who worked for one of the privatised industries such as British Airways, British Rail, British Steel, and Royal Mail.

Another large group affected are people who worked for a private sector employer who paid into a good scheme at work that promised them a pension related to their salary. They used to be called ‘final salary’ schemes and nowadays are called Defined Benefit or DB schemes. In the past many large firms ran such schemes. There are still nearly 6000 of them and if you paid into one at any time from 1978 your new state pension will be reduced.

Also included are some people who paid into a personal pension and who were persuaded to contract out of part of the state scheme – at the time it was normally called ‘contracting out of SERPS’.

For all these people their new state pension will be reduced for the years they paid into a contracted out pension scheme. That deduction applies even if they have paid the 35 years which is needed to get a full pension – the deduction is made after the full pension is worked out. It can also apply even if they were contracted out for a short period and paid in 35 years or more when they were not contracted out. These deductions can be very large but normally can never leave you with less than £122.30 a week basic pension.

Please do not ask me why that is fair! It may not be fair, but it is the law. The good news is that you can reduce that deduction and, depending on your age, you may be able to get your pension up to the full flat-rate £159.55.

If your new state pension has an amount deducted from it because you spent some time paying into a good pension scheme at work then you can reduce that deduction or even wipe it out. This guide is of most use to people who are currently aged at least 56. It will help even if you already have 35 years National Insurance contributions or more.

If your new state pension is reduced because you paid into a good pension scheme at work then every year of National Insurance contributions from 2016/17 to the year before you reach state pension age will mean that deduction is less.

If you work and earn more than £113 a week you will get contributions credited or paid to your account (you start actually paying for them when you earn above £157 a week; under that they are credited). If you get child benefit for a child who is less than 12 then you will also get a credit for each week. If you get jobseeker’s allowance, employment and support allowance, or working tax credit then you will get a credit for each week you get that benefit. You can also get credits if you are a carer in some circumstances. Check here for more details of who can get credits. Some are given automatically, others have to be claimed.

Men can get credits for years between women’s state pension age and 65. They get a credit for the tax year in which they reach women's state pension age (unless they also reach 65 in that tax year) and any subsequent tax year before the tax year they reach 65. So these man credits are only available to men born before 6 October 1953. See footnote.

If you are self-employed then you must pay what are called Class 2 National Insurance contributions if your profits are £6025 or more. They are called Class 2 and are £2.80 a week (£145.60 a year). Self-employed people can also pay these contributions voluntarily even if their profits are below £6025 - but only for years in which the were genuinely self-employed. These Class 2 contributions will end from 6 April 2018.

If you will not pay National Insurance contributions at work or as self-employed or get credits for them you can pay voluntary contributions, called ‘Class 3’. They will cost you £14.25 a week (£741 for a year). For each extra year of contributions your pension will be boosted by £4.55 a week (£237 a year) so the payback is rapid – just over three years for non-taxpayers; almost four if you pay basic rate tax; just over five for higher rate taxpayers, and almost six for top rate 45% taxpayers.

The new state pension up to £159.55 a week comes under the ‘triple lock’ promise and will rise each April by prices, earnings, or 2.5% whichever is the highest, at least until April 2022.

If you have paid some contributions at work or as self-employed during the tax year but you are short of a full year you can pay individual weeks through Class 3 (or Class 2) to make your record up to a full year.

You can only pay Class 3 contributions for the years before the tax year in which you reach state pension age. That limits the number of years you can pay to boost your pension. The table show which years you can pay Class 3 contributions for to set against the contracted out deduction and the maximum boost that may give to your pension. Your pension cannot be boosted to more than £159.55. So if it is more than £122.30 then the maximum boost is less than £37.25.

Reach State Pension Age in
Men born
Women born
Years you can pay
Maximum pension boost (2017/18 rates)
6 April 1951
5 April 1952
6 April 1953
5 July 1953
6 April 1952
5 April 1953
6 July 1953
5 Oct 1953
6 April 1953
5 Jan 1954
6 Oct 1953
5 Jan 1954

Men and women born

from 6 January 1954
to 5 July 1954
from 6 July 1954
to 5 April 1955
from 6 April 1955
to 5 April 1956
from 6 April 1956
to 5 April 1957
from 6 April 1957
to 5 April 1958
from 6 April 1958
to 5 April 1959
from 6 April 1959
to 5 April 1960
     £37.25 (max)

There is no hurry to do anything. You can pay voluntary Class 3 contributions in the tax year they are due or up to six years after that. You cannot pay them in advance. The price may rise as time passes so it will be cheaper to pay them as soon as you can.

If you will reach state pension age in 2017/18 you may want to act soon to see if you can boost your pension by paying National Insurance contributions for 2016/17. Otherwise it is probably best to wait.

You can phone the DWP’s Future Pension Centre on 0345 3000 168 and ask for help. Ask them what your ‘starting amount’ is and ask if there is a deduction for being contracted out. If your starting amount is less than £159.55 and there is a contracted out deduction then you may be able to boost it using the information in this guide. 'Starting amount' is explained in the notes below. If you have a deduction for a pension which you cannot trace use the Government's free Pension Tracing Service.

Many people have contacted the DWP and been told they cannot boost their pension because they have 35 years of contributions. That is incorrect. Some officials seem to be confusing this scheme with one to fill gaps in your contribution record. There is a separate guide about that – see Filling Gaps below.

You may get more sense from the free and excellent Pensions AdvisoryService or call on 0300 123 1047. Beware of similar sounding commercial organisations.

You can check your starting amount at this Government website. You will have to go through security procedures which can be a pain. Make sure it includes your 2015/16 contributions. In future this website may let you see how you can boost your pension by paying extra National Insurance contributions. It will be a lot easier to check these things when the website is fully operational, probably in a year or so.

1. All the rates in this guide are correct in 2017/18. The new state pension will rise from April 2018, to at least £163.55 a week and probably more than £164. Class 3 contributions will also rise, probably by about £7 a year.

2. If your income is low then you may get extra money from pension credit or help with your council tax or rent (rent or rates in Northern Ireland). If you buy Class 3 contributions to boost your pension those benefits will be reduced but it will almost always still be worthwhile.

3. Your ‘starting amount’ is the calculation of how much state pension you have built up at 6 April 2016 under the old and the new rules. Your starting amount is the one that is bigger. It will take account of National Insurance contributions paid up to 2015/16 and will also make a deduction for years you have been ‘contracted out’ of part of the state pension system called SERPS. If it shows you have fewer than 35 years of National Insurance contributions then you may be able to pay more to boost that number towards 35. See ‘other groups’ guides link below.

4. SERPS, the State Earnings Related Pension Scheme, was an earnings-related supplement to the basic state pension. People paid into it as part of their National Insurance contributions from April 1978 to April 2016. From April 2002 it was changed and renamed State Second Pension (S2P). It was SERPS and S2P – sometimes called ‘additional pension’ – which people ‘contracted out’ of if they paid into a good pension at work or in some cases into a personal pension which they chose to ‘contract out’. They paid lower National Insurance contributions. The pension they paid into was supposed to replace the SERPS or S2P but it does not always do so in full.

5. Tax years run from 6 April one year to 5 April the next. So 2017/18 runs from 6 April 2017 to 5 April 2018.

6. If you have an old pension you cannot trace, use the Government's free Pension Tracing Service.

7. Contacted Out Pension Equivalent is the amount deducted from your new state pension to take account of the time you were contracted out of SERPS/S2P. In theory the amount deducted should be paid to you by the pension scheme you paid into as part of being contracted out. But that will not always happen especially if you were contracted out into a personal pension. This government guide to contracting out sort of explains it.

8. Man credits. These man credits - called auto-credits - are only awarded for whole tax years, not individual weeks. Men born 6 April 1952 to 5 April 1953 can get a year of contributions credited for 2016/17. They may also get earlier years credit but they do not help with reducing their contracted out deduction. Men born 6 April 1953 to 5 October 1953 can get a year credited for 2017/18.

The credit is given for the tax year in which they reach women's state pension age (unless they also reach 65 in that tax year) and for any subsequent tax year before the tax year they reach 65.

Men born 6 April 1951 or later and women born 6 April 1953 or later.
·         Filling gaps in your National Insurance record – new state pension 

Men born before 6 April 1951 and women born before 6 April 1953
·         Filling gaps in your National Insurance record – old state pension 
There is also a comprehensive guide to what you can do to top up your state pension available as a download from the mutual insurance company Royal London written by former Pensions Minister Steve Webb it is well worth a couple of hours study.

Version: 1.2
9 October 2017




How do I find a good financial adviser? It's a question I am often asked. And there is no easy answer. Especially if you do not have a lot of money.  

My first question is do you need financial advice? Unless you have a big lump-sum (tens of thousands of pounds or more) or a lot of surplus income to invest (many hundreds of pounds a month) you probably don't need financial advice and probably will not want to pay the fees good advisers charge. See free financial advice below for other services that can help you.  

But if you do want regulated financial advice - and many people thinking of exercising their new pension freedoms are desperate for advice - then here is my guide. 

You must pass financial advisers through three filters.

Filter One
Only ever use an Independent Financial Adviser. This filter has been weakened and confused by the changes the FCA and, before it, the FSA have made. Under the simple polarisation regime introduced in 1988 there were two sorts of financial advice. Independent and Tied. Or Good and Bad. Tied advisers in banks were not advisers in any true sense of the word as they could not by law recommend the best product from another bank even if they knew about it. And the evidence of mis-selling has borne out their inadequacy.

Then in June 2005, the FSA added a middle ground of ‘multi-tied’ advisers. Some claimed they were as good as independent. After all, they said, how could independents really know all there was to know about thousands of products? In reality, they said, IFAs also had a panel of those they knew and trusted. It was all nonsense of course. Multi-tied advisers were compromised by their status which allowed collusion with product providers on commission and special deals, distorting the market in favour of everyone except the consumer.

Then after years of discussion the Retail Distribution Review reintroduced polarisation from 31 December 2012 into independent and restricted. It also, following my advice over many years, ended the conflict of interest between advisers and their customers by scrapping commission payments. Financial firm or products were now banned from paying commission to the adviser who recommended them. 

But ‘restricted’ was itself further polarised into two groups. 
  • As you would expect, one group comprised firms which did not look across the whole market. They remained tied or multi-tied to individual providers. And some did deals to get providers to pay to be on their list of favoured suppliers. Money that looked, smelt, and sounded very like sales driven commission.
  • The other group was less expected. They were firms that specialised in just one or a few areas. For example, a firm that specialised in annuities, knew everything about annuities from the whole of the annuity market, but did not advise on investments or pensions could not call itself 'independent'. It was called ‘restricted’. 
This confusion between useless firms that simply sell products from a few providers and genuine specialists who know all there is to know about one type of product is not really in the consumer's interest. Not least because those two groups do not have separate names. They are officially all just 'restricted' - though that is a term hardly any of them uses. 

So by quite reasonably filtering out the restricteds who are tied or multi-tied you also lose the whole-of-market specialists as well. They may be good financial advisers. But I still reject them. Don’t blame me. Tell the FCA to change its daft rules.

Filter Two 
Only ever use an IFA who is a chartered or certified financial planner. This brings you down to the best qualified 4500 - one in five or so – of independent advisers who are beyond what is called QCF Level 6. So they have put a lot of effort into being the good guys and the chances of a bad guy (or gal) remaining in there is tiny.

Again, lots of good advisers will be rejected by Filter Two. Sorry. Get the qualifications.

Filter Three 
Only use a financial planner who you can pay in pounds. Never choose one who wants to charge you a percentage of your money. You earned, made, or inherited it. Only HMRC is entitled to a percentage of it. 

Percentage fees are a hangover from the days of commission. If you cannot afford the fee in pounds you probably do not need financial advice. 

You should also pay upfront from your non-invested resources rather than out of your invested money. One drawback of that approach is that a fee taken out of your pension fund comes from money which has already had income tax relief. So ultimately that fee costs you less than if you paid it out of your taxed income. It is all part of the massive taxpayer subsidies for the financial services industry (relief from VAT costs £4.5 billion a year). They should be stopped of course. But until they are, if you must, pay in tax-subsidised pounds from your pension fund. But ideally - and with all other investments - pay in pounds out of your non-invested resources. That way you see the money you are paying and can ask yourself – is it worth it? And never pay a percentage of your fund. Ever.

These three filters will take you a long way towards finding good, safe, but often expensive, financial advice. I apologise to the good, safe, and perhaps cheaper advisers it filters out. They can get themselves through my three filters by becoming independent or getting financial planning qualifications. 

Web research
Find your initial list of financial advisers using one of two websites 
  • Each entry says clearly under the name of the firm if they are independent or 'restricted whole of market'. At the top of the list there may be an adviser who has paid for an advertising box - it has a coloured background and 'AD BETA' in small letters in the top right hand corner. After that advisers are listed for their relevance. Those with the most details and facilities on the site have paid more for that but the fee does not affect their position in the listing. You can tick specialities to help find the kind of adviser you want. And you can specify certain qualifications too.
  • only lists IFAs and you can then filter out the non-planners. 
Neither service lists all financial advisers. They have to pay to be on the lists and not all think it is worth it. With both there are ways of paying to get a better position. There are other lists but they are generally not as useful.

Free financial advice 
If you want financial advice outside the regulated professionals, then try the free and Government approved Money Advice Service whose website is very good on a whole range of money issues, some of which many financial advisers will know little or nothing about. Although there are plans to scrap it, that will not happen for some time. Or you may want to consider paying £1 a month for the Which? Money Helpline.

If you have pension questions then the Pensions Advisory Service offers an excellent website and a helpful helpline on 0300 123 1047. The service is free and approved by the Government.

Specific advice about the new pension freedoms can be found at the Government's Pension Wise website. Or you can call 0300 330 1001 to book an appointment for one-to-one telephone advice, or a face-to-face interview at a nearby Citizen's Advice office.  

Only the term 'independent financial advice' is regulated. Anyone can call themselves a 'financial adviser', an 'investment manager', or a 'property specialist'. And they do. Those terms are meaningless. If an adviser does not use the word 'independent' or does not say simply say 'yes' when you ask if they are independent, then they are not. Avoid them. And always ask for a FCA number and check it out on the Financial Services Register. Sadly - and madly - the register does not say if the adviser is independent or restricted.

Paul Lewis
11 September 2016
Vs. 1.25

This piece is expanded from an article I originally wrote for Money Marketing which bizarrely has someone else's by-line on it!