Retirement Topic 2 – State Pension Provision

Question 1

Class 1 NICs:

Answer 1

• Payable by employees and employers
• Payable within these thresholds – lower earnings limit, primary earnings threshold, secondary earnings threshold, upper earnings limit
• Those between lower earnings and primary threshold are not subject to NICs, but can pay towards their state pension entitlement

Question 2

Class 2 NICs:

Answer 2

• Weekly flat-rate contribution by the self-employed
• Provide eligibility for state pension

Question 3

Class 3 NICs:

Answer 3

• Weekly flat-rate payments on a voluntary basis to fill gaps in someone’s record
• Ensures enough have been paid for new state pension
• Payment must be made within 6 years of the date that the NICs were not enough

Question 4

Class 4 NICs:

Answer 4

• Also by self-employed but is based on profits
• 0 if their profits are less than the lower profits limit
• Set rate on profits between lower and upper limits
• Smaller set rate on profits above the upper limit

Question 5

State pension age will go up to… between 2026 and 2028

Answer 5

67

Question 6

If someone defers taking the pension, for every 9 weeks it is deferred, the state pension is increased by

Answer 6

1%

Question 7

Considerations affecting both basic and new state pensions:

Answer 7

• Both paid irrespective of pre-retirement income
• Paid without deducting tax but are taxable
• Married couples are able to both claim a full state pension if they qualify
• Those who live abroad are able to claim, and in EEA countries (Switzerland, Gibraltar) they can be increased in line with inflation for 6 months or more a year
• New and basic state pension now increase in line with the triple lock - the higher of inflation measured by CPI, earnings growth or 2.5%

Question 8

State earnings-related pension scheme (SERPS)

Answer 8

• Replaced graduated scheme from 71 to 02, which is when the state second pension came out (S2P)
• Anyone who was in SERPS between 71 and 02 and retired before 6 April 2016 will receive SERPS benefits along with any S2P benefits accrued
• Based on the individual’s ‘band earnings’
• Objective was to boost an individual’s upper band earnings by 25%

Question 9

Key points for S2P scheme:

Answer 9

• Gave those with low earnings a better pension than SERPS
• Greatest benefit was for those classed as low earners
• Carers and the disabled got credits towards S2P

Question 10

Contract-out

Answer 10

when you give up your pension benefits from SERPS or S2P in return for a reduced rate (or rebate) of NICs.

Question 11

Contracting-out could be achieved in 2 ways:

Answer 11

• Through contracted-out defined-benefit occupational scheme where both employer and employee pay reduced amount of NICs
• Personal or stakeholder scheme, where normal contributions are made but a rebate is paid into the pension by the government.

Question 12

Pension credit was made to

Answer 12

increase pension income for older people. It is split into 2 sections – guarantee credit and savings credit. It is means tested, so eligibility is based on income and savings.

Question 13

Guarantee credit

Answer 13

Can be claimed by anyone over the women’s state pension age if they have weekly income below a certain amount – ‘appropriate amount’. It will provide a top-up to this amount

Question 14

Savings credit

Answer 14

Intended to reward people who made some provision for their retirement.

Unavailable to more or less everyone who is retired after the 6 April 2016.