UPDATED for the 2020/21 tax year
More than a million people who
reach state pension age in the years from 6 April 2016 will not get the full amount of the new ‘flat-rate’ state pension - currently £175.20 from 6 April 2020.
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.
NEW STATE PENSION
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 2020/21 that amount is £175.20 a week (£9110.40 a year) and is taxable. However, there are around one
and a half million people who will reach pension age in the years before 2027 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.
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 £134.25 a week of the old or 'basic' state 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 £175.20.
THE DEDUCTION
THE DEDUCTION
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 57. 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 the tax year you reach state pension age will mean that deduction is less.
If you work and earn more than £120 a week you will get contributions
credited or paid to your account (you start actually paying for them when you
earn above £183 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.
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 £6475 or more. They are called
Class 2 and are £3.05 a week (£158.60 a year). Self-employed people can also pay these contributions voluntarily even if their profits are below £6475 - but only for years in which the were genuinely self-employed. The Government planned to phase out Class 2 contributions but that has been deferred.
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 £15.30 a week (£795.60 for a year). For
each extra year of contributions your pension will be boosted by £5.01 a week
(£260.30 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. Contributions for earlier years are less: 2019/20 - £780, 2018/19 - £772, 2017/18 - £740, and 2016/17 - £733.20 making them even better value for money.
The new state pension up to £175.20 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. Recent economic conditions may see the end of that triple lock from April 2023 or even earlier.
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 £175.20 a week and it cannot be less than £134.25 so the maximum boost is £40.95.
BOOSTING A NEW STATE PENSION THAT IS SUBJECT TO A CONTRACTED OUT PENSION EQUIVALENT (COPE) DEDUCTION
Reach State Pension Age in
|
Men born
|
Women born
|
Years you can pay
|
Maximum pension boost (2019/20 rates)
|
||
2016/17
|
6 April 1951
|
5 April 1952
|
6 April 1953
|
5 July 1953
|
0
|
£0.00
|
2017/18
|
6 April 1952
|
5 April 1953
|
6 July 1953
|
5 Oct 1953
|
1
|
£5.01
|
2018/19
|
6 April 1953
|
5 Jan 1954
|
6 Oct 1953
|
5 Jan 1954
|
2
|
£10.02
|
Men and women born
|
||||||
2019/20
|
from 6 January 1954
|
to 5 July 1954
|
3
|
£15.03
|
||
2020/21
|
from 6 July 1954
|
to 5 April 1955
|
4
|
£20.04
|
||
2021/22
|
from 6 April 1955
|
to 5 April 1956
|
5
|
£25.05
|
||
2022/23
|
from 6 April 1956
|
to 5 April 1957
|
6
|
£30.06
|
||
2023/24
|
from 6 April 1957
|
to 5 April 1958
|
7
|
£35.07
|
||
2024/25
|
from 6 April 1958
|
to 5 April 1959
|
8
|
£40.08
|
||
2025/26
and later |
from 6 April 1959
|
to 5 April 1960
and later |
9
|
£40.95
(max) |
||
NEXT STEPS
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 2019/20 you may want to act soon
to see if you can boost your pension by paying National Insurance contributions
for 2016/17, 2017/18, 2018/19, and 2019/20. Otherwise it is probably best to wait.
You can phone the DWP’s Future Pension Centre on 0800 731 0175 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 £175.20 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. Others have been told that they need more than 35 years to get a full pension. That can be true in the circumstances in this blogpost, but it is a confusing way to put it.
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. Others have been told that they need more than 35 years to get a full pension. That can be true in the circumstances in this blogpost, but it is a confusing way to put it.
You may get more sense from the free and excellent Pensions AdvisoryService or call on 0800 011 3797. 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. This website may let you see how
you can boost your pension by paying extra National Insurance contributions. It may be operational now or that may still be pending.
NOTES
1. All the rates in this guide are correct in 2020/21.
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 2020/21 runs from 6 April 2020 to 5 April 2021.
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.
BOOST YOUR PENSION GUIDES FOR OTHER GROUPS
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.
BOOST YOUR PENSION GUIDES FOR OTHER GROUPS
Men born 6 April 1951 or later
and women born 6 April 1953 or later.
Men born before 6 April 1951 and
women born before 6 April 1953
·
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: 4.00
24 May 2020
Previously: Target 155, Target 164, Target 169
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Previously: Target 155, Target 164, Target 169
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