Monday, 12 April 2021

TARGET 179 - BOOST YOUR NEW STATE PENSION

UPDATED for the 2021/22 tax year. All rates are those paid from 12 April 2021.


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 £179.60 from 12 April 2021.

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 have paid less than 35 years of National Insurance contributions can boost their state pension by paying extra contributions now. This piece does not cover that issue. Try the links at the end.

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 2021/22 that amount is £179.60 week (£9339.20 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.

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 £137.60 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 and the amount deducted, you may be able to boost your pension up to the full flat-rate £179.60.

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 58. 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 you pay 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 £184 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 £6515 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 £6515 - but only for years in which the were genuinely self-employed. Plans to phase out Class 2 contributions have been cancelled for now. 

If you will not pay National Insurance contributions at work or as self-employed or get credits for them then you can pay voluntary contributions, called ‘Class 3’. They will cost you £15.40 a week (£800.80 for a year). For each extra year of contributions your pension will be boosted by £5.13 a week (£266.83 a year) so the payback is rapid – three years for non-taxpayers; less than four if you pay basic rate tax; five for higher rate taxpayers, and less than six for top rate 45% taxpayers. Contributions for earlier years are less: 2020/21 - £795.60, 2019/20 - £780.00 making them even better value for money. If you pay in this year 2021/22 you can only pay the lower rate for two previous tax years. Contributions for 2018/19 and earlier will be at today's rate of £800.80. [For reference earlier rates were 2018/19 - £772, 2017/18 - £740, and 2016/17 - £733.20 but you can no longer pay at these rates.]

The new state pension up to £179.60 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. 

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 to set against the contracted out deduction and the maximum boost that should give to your pension. Your pension cannot be boosted to more than £179.60 a week and it will not ever be less than £137.60 so the maximum boost is £42.00.

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 (2021/22 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
£5.13
2018/19
6 April 1953
5 Jan 1954
6 Oct 1953
5 Jan 1954
2
£10.26

Men and women born


2019/20
from 6 January 1954
to 5 July 1954
3
£15.39
2020/21
from 6 July 1954
to 5 April 1955
4
£20.53
2021/22
from 6 April 1955
to 5 April 1956
5
£25.66
2022/23
from 6 April 1956
to 5 April 1957
6
     £30.79
2023/24
from 6 April 1957
to 5 April 1958
7
     £35.92
2024/25
from 6 April 1958
to 5 April 1959
8
     £41.05
2025/26
and later
from 6 April 1959
to 5 April 1960
and later
9
     £42.00
 (max)


NEXT STEPS
There is no great 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. So you can still pay for the 2016/17 tax year and will be able to do so until the end of the 2022/23 tax year. You cannot pay them in advance. However, 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 2021/22 you may want to act soon to see if you can boost your pension by paying National Insurance contributions for the five years 2016/17, 2017/18, 2018/19, 2019/20, 2020/21. That could give you an extra £25.66 a week on your pension.

You can phone the DWP’s Future Pension Centre on 0800 731 0175 and ask for help - it is still taking calls despite the pandemic. Have your National Insurance number with you. Ask what your ‘starting amount’ is and ask if there is a deduction for being contracted out. If your starting amount is less than £179.60 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.

In the past, 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. 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 2021/22. 

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 2021/22 runs from 6 April 2021 to 5 April 2022.

6. If you have an old company or personal 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.

Men born from 6 October 1953 cannot get them.

BOOST YOUR PENSION GUIDES FOR OTHER GROUPS
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: 4.50
14 April 2021
Previously: Target 155, Target 164, Target 169, Target 175
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Tuesday, 6 April 2021

Banks must act to control fraud epidemic

Banks must act to control fraud epidemic

Don’t think you are too clever to be conned

An epidemic is sweeping the UK. Laying low the old and vulnerable, damaging healthy adults for life and undermining our belief in the systems that are supposed to protect us. It is caused not by a few strands of RNA, but by an intelligent life form. Clever, resourceful and agile, it worms its way into our brains, distorts our perception of reality and makes us pleased to give our money to thieves. 

In 2020, nearly 150,000 individuals had £479m taken from them by this plague. And that is just a small subgroup of the most common form of crime in Britain — fraud. It may be costing us billions of pounds a year. No one knows because much of it is never reported. What could be more embarrassing than admitting you were fooled by thieves into giving them the keys to your safe? Fraud is the crime we are the most likely to experience. It is out of control. And no one seems able to stop it. 

This type of scam begins with a frightening cold call. BT says your router is insecure and you need to pay to secure it. HMRC calls to warn that you are about to be prosecuted for tax evasion if you do not pay a sum into court now. Your bank reveals that your account has been compromised and the money must be moved somewhere safe. They panic you, threaten you, and if you are still sceptical they ask you to check caller ID. When you do it will show the correct number for BT inquiries, HMRC or even the fraud reporting line for your bank. 

These genuine numbers are sent by a technique called number spoofing, which allows the thieves to send any number they choose to the Caller ID system. One top law enforcement officer told me on Money Box recently “do not trust what you see on caller ID”. But people do and then agree to transfer money to the thieves or even give them the keys to do so themselves. Some steps have been taken to bar some numbers from being spoofed but the gov.uk website is a rich source of official numbers for thieves to harvest. Ofcom says there is no general solution to the problem of callers sending a false number. 

Until one is found the thieves will wrap this cloak of credibility around them. It would matter less to customers if they were compensated for being victims of this professional psychological warfare. A recent code was supposed to ensure that blameless victims would have their money reimbursed by the banks. But the latest figures from UK Finance show that for the 139,104 thefts that fell under the code in 2020, only 45 per cent of the £312m stolen was given back to customers — just £141m. That is a lot better than the 19 per cent reimbursed before the code began in May 2019. But evidence from dozens of people who still come to me after losing life changing sums indicates that banks are using the code itself to justify not paying. 

One popular disclaimer is that under paragraph R2(1)(a)(iii) the customer did not heed an “effective warning” about the transaction before they made it. That raises the question — can a warning be effective if it is not heeded? Another is paragraph R2(1)(c)(iii), under which the customer did not have a reasonable basis for believing the person they were paying was legitimate. But would anyone hand over thousands of pounds to someone they did not believe was legitimate? The code was not intended to be a playlist of excuses not to pay. 

Some banks are worse than others. The Payment Systems Regulator revealed last year that two out of eight banks in the code paid customers nothing in 96 per cent of cases. Even the best only reimbursed 59 per cent in full (the average was one in six). The regulator refuses to identify which banks are the worst, keeping that vital information secret from the people who need it: their customers. 

 Contrast this with TSB, the one major high street bank that is not a member of the code. It has its own “fraud refund guarantee” and says it repays in full 99 per cent of customers whose money has been stolen in this way. The regulator is now consulting on similar mandatory rules that would reimburse all customers who were not implicated in the crime. That would concentrate the minds of the banks. They already meet all losses from unauthorised thefts, such as card fraud or remote banking fraud, and these are being controlled, falling by 7 per cent in 2020 according to UK Finance. But losses to authorised payment frauds, where less than half are reimbursed, increased by 5 per cent with total incidents up 22 per cent. If the banks had to repay everyone it might make them more interested in stopping these thefts. 

The uncomfortable truth for the banks is that they are at the heart of these crimes. They allow thieves to open and operate current accounts and then use the faster payment system to receive the money and move it rapidly between accounts until it vanishes. In 2020, 96 per cent of the money stolen this way went through the faster payment system, a total of £398m, up 19 per cent on 2019. 

 I put my hand up here. In my early days on Money Box I championed faster payments. Why does it take three days to move money in the 21st century, we asked. And where is our money for those three days? Answer: earning interest for the banks. By 2008 the banks were shamed into setting up a new infrastructure that moved money at once and, crucially for the crooks, beyond recall. 

Perhaps now is the time to introduce a pause in the system so that when we transfer money to a new payee there is a delay of, say, 24 hours before the payment is made. One of the characteristics of the people whose money is taken is that within at most a few hours the psychological drug that made them credulous enough to co-operate with the crime wears off and they think: “****! I’ve been robbed.” But even after a few seconds it is too late to undo the transfer. 

 Preventing number spoofing, making the banks liable and introducing a pause for new payees would go a very long way towards ending most of these crimes. Meanwhile, there is one impenetrable barrier to them. End the call. No one ever lost money by doing that. And do not think that you are too clever to be caught. No one is. Once you engage, you are hooked. Their silver tongues will wrap around your brain while their digits enter your bank account and fish out all your money. So end the call.

This piece originally appeared in the FT early in April.

Paul Lewis
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