Shipmates will be very interested in the article, below, written by John Lavery CEO of the White Ensign Association concerning National Insurance and the State Pension.
Many of us may have been invited to sign a petition in Facebook or something similar against the changes introduced last year to the State Pension on the grounds that this action unfairly discriminated against members of the Armed Forces. This campaign caused significant anxiety amongst a number of the serving sailors and marines as well as the veteran community so I offer this wider explanation of the situation. This is a change that has affected large elements of the public sector and has been on the cards for a while and well published – I would suggest that many didn’t understand its implications and didn’t appreciate that they were making a lower level of national insurance contribution (approx. 10.6%) than many (12%) before 2016. To help I offer the following facts and observations as I understand them:
- The new state pension was introduced on 6th April 2016.
- The basic rule is that those MEN born ON or AFTER 6 April 1951 and those WOMEN born ON or AFTER 6 April 1953 will be eligible for the new state pension.
- The basic state pension before the change was £119 a week or just over £6,000 a year. This could then be topped up by additional state pension entitlements – either the State Earnings Related Pension Scheme (SERPS) which were in place from 1978 to 2002 or the State Second Pension, which replaced it. The armed forces along with much of the public sector were “contracted out” of these second top up pensions – the explanation offered was that they already had a public sector occupational pension and thus didn’t need the additional state pension entitlement – they were thus charged a slightly lower rate of NI.
- Between April 2016 and April 2021 there will be an element of transition for those reaching state pension age but after April 2021 there will be ‘flat rate’ pension for all. This is currently £159.55 a week, which would amount to almost £8,300 a year.
- The new state pension does not allow “contracting out” thus all those who previously making the lesser NI contribution saw an increase in their NI charge as of April 2016 to the national standard rate (12%).
- Up until April 2016 individuals needed to have 30 years of qualifying National Insurance contributions to get the current full state pension, but as a result of the introduction of the new scheme they will need 35 years of contributions to get the full flat rate state pension.
- The pension calculation now starts with a default of the full pension (£159.55) and then makes deductions for such things as lower contributions or less than the full qualifying period.
- For those who have fallen short of the new rules there are ways of “topping-up” the deficit to some extent, however for those still serving in the Armed Forces they should not worry about it too much – It has been calculated that for those who have been “contracted out” for 30 years it should take them an additional 8 and a half years paying the full rate of NI to get the new state pension at its maximum rate – which of course cannot be claimed until 66, 67 or 68 depending on your age. The less time an individual has been “contracted out” ie less service before 2016 the shorter the time before they have made up the deficit in NI payments.
- State Pension Age is 66 for those aged 57 to 63, 67 for those currently between 40 to 56, and 68 for those 39 and under.
- In all honesty this change has the greatest effect on those individuals who become eligible to draw their state pension in the next 5 years or so – thus is predominantly a veterans’ issue.
- The Facebook petition intimates that this adjustment of the rules has been applied only to former members of the Armed Forces and Civil servants – this is not the case – contracting out was normal practice across the whole public sector and indeed amongst many independent Final Salary schemes as well.
- If an individual is unsure about what their pension entitlement is likely to be they can apply for a State Pension Statement to give an estimate of how much they are likely to get upon reaching state pension age. The statement will be based on the National Insurance contribution record as it stands on the date the statement was produced – link below:
If you want further information or are still concerned please feel free to get in touch with the WEA.