Does anyone understand the components of DWP pension?

[Metr0Land]

For the last 2 years my state pension has risen by more than the stated 'national' percentage. I'm not complaining but DWP are known to come after people for immediate payment in full of overpayments that are their mistake.

 

I'm 75 if that makes any difference. It mostly seems to revolve around pre 1997 additional state pension, and contracted out amounts.  Thus my statement always reads something like:

Basic state pension     £x

Plus pre 97 addnl state pension  +£y

MINUS contracted out deduction -£z

Plus Graduated retirement benenfit +£a

 

So from Apr24 my increases are:

Basic state pension  +8.5%

Pre 97 addnl state benefit +6.7% on this portion

MINUS contracted out deduction +1.6% on this portion

Plus Grad benefit +6.7% on this portion

Overall +10.5%

 

(The jiggery pokery of adding pre 97 and taking off contracted out actually adds +16.4% to that portion of the total which is about a quarter of the grand total).  So the fact that they're not penalising me as much each year pro-rata on the contracted out portion has had quite a benefit with regards to the 2023 increase and the upcoming Apr24 increase.

 

Can anyone explain this in simple terms?

[Oldddudders]

4 minutes ago, Metr0Land said:

Can anyone explain this in simple terms?

No. I am also 75, but my UK state pension goes straight into my French bank account, and helps keep me in wine. 

 

And, before you ask, I do declare every penny of both my pensions to the French taxman, who seems very relaxed about the total amount, which seems to be rather greater than those of the majority of my commune. Online data is available about all sorts of detail on every commune in France, I think. 

 

I also feel I pay less tax here than I would in UK. 

[Mallard60022]

Citizens Advice are very good at looking at this sort of thing...no charge and it's confidential of course.

Try getting a chat if you have a local set up.

Phil 

[Michael Hodgson]

OK. I'm no expert but I'll explain it as best I can according to my possibly flaky understanding of the rules.  It's horrendously complicated, and my father certainly understood it much better than I do - when he was demobbed he worked in the Ministry of Pensions and National Insurance (as that bit of the DWP was originally called) when it was first being set up by the post war Labour Govenment.  And his own civil service pension was even more complicated because he had special rights going back before the war.  Pensions are an utter nighmare to understand, because every few years successive governments kept changing the rules about contribtions you pay while you're working and what you utimatately get.  The complexity is because they do put in safeguards to protect whatever rights you have already built up.

 

The original 1946 scheme paid a fixed flat sum now called the basic state pension to everybody regardless of their salary.  You paid for that by a fixed deduction from your wages (the "NI stamp" stuck on your National Insurance card before computerisation).  This was deducted from your pay, and is effectively  an additional tax on income as you have no choice.  You needed to have paid (or been credited with, while on the sick or the dole) 30 years NI contributions when you retired in order to get the full amount, although I think the qualifying period has increased more recently because of later state retirement ages!).  As long as you had at least 10 years you got something, but it was scaled back if you didn't have the full 30 years service.

 

The  basic state pension was a real come-down if you were reasonably well paid, so in the 1960s/70s they started charging you more contributions based on salary in order to pay you more in retirement.  The Graduated Benefit is what you earned by paying NIGC (Graduated Contribitions) before 1975

 

You get the basic station pension whether or not you were "contracted out" of SERPs - State Earnings-Related Pension (an option you were given later, for a scheme which no longer exists), a scheme based on your historical earnings.  I think you could also have earned more oenaion if you worked for over 30 years by paying voluntary contributions, and had you done so that would have meant yet another adjustment. 

 

If you didn't contract out you now get Additional State Pension.

 

If you did contract out, either you paid less in NI contributions at the time or that money went into a company or private pension which you would now be drawing instead.  This applies to most people as it was usually considered better to contract out and join the company scheme if there was one.    That scheme also changed during its lifetime and has itself been replaced by another scheme.

It suited companies to persuade you to opt out of SERPs, as the Employer's NI contribution was lower - so there could be mis-selling cases with that.  As I understand it, there is a different figure for additional benefit depending on whether you were born before/after 6th April 1951 (hence the pre/post 97 when rules changed yet again).  Those born after that date are on a slightly simplified system called the New State Pension instead of the Basic Pension.

 

However even though contracted out, you got an additional safeguard called a Guaranteed Minimum Pesion (GMP), and the deduction shown reduces your additional pension to what it would have been if you hadn't been contracted out whilst still meeting that guarantee.  So the dedution can't be bigger than the additional pension.

 

 

I think the political "triple lock" annual increase (we get the highest of average earnings increase, or inflation, or 2,5%) is applied only to the basic part element, which was always an arbitrary political decision at the mercy of the Chancellor.  That was introduced because pensions hadn't been keeping pace but it could easily change under a future government.  The other figures are calculated by actuaries to protect various rights you've earned and take account of historical data, inflation etc, and the annual increases in each part of what you are paid reflect what they calculate as being fair for that particular component.

 

I'm happy to be corrected by those who understand the system better than I do.

[Derekl]

I get the new state pension (born post April 1951) plus a "protected payment". I have the full 30 years contribution. I was contracted out for a period, but there is no reference to that, unless the "protected payment" is something to do with that. The protected payment increases at the same rate as the basic pension, that is, in accordance with the triple lock. I confess I don't understand it, but seem to be getting much the same or slightly more than others I have spoken to, so haven't worried unduly.

[Hibelroad]

I spent years working in financial services and pensions are a law unto themselves. At regular intervals the government of the day decides to simplify them and just end up adding another layer of complexity. As regards the state pension I don’t think anyone understands it, I started on a reduced amount but after a few months got the full amount, my own back of an envelope calculations tended to indicate a reduced amount but only by a little bit. Non of this helps the original question but if you cannot make sense of pensions then you are not alone. 

[petethemole]

2 hours ago, Michael Hodgson said:

my father certainly understood it much better than I do - when he was demobbed he worked in the Ministry of Pensions and National Insurance (as that bit of the DWP was originally called) when it was first being set up by the post war Labour Govenment.  And his own civil service pension was even more complicated because he had special rights going back before the war. 

My Dad was similar, he was in the Ministry of Pensions pre-war, was called up early 1940 and demobbed mid '46, going straight back to his old job, now in MPNI.  He mostly worked on pensions policies, but spent some years with industial injury claims.  Periodic changes of government or policy kept him and his colleagues busy.  He was very shaken when a change of goverment led to a new scheme they had been developing being dropped suddenly and one of his colleagues commited suicide.  Dad became very disillusioned, partly due to being passed over for promotion by ex public school men.  The stress of commuting on the Bed-Pan line during electrification took its toll.  He ended up driving to London daily, then took early retirement to look after Mum.

Thanks to Michael Hodgson for explaining, I had got it generally right but it's nice to have it confirmed.  My Dad may have known yours, if he worked in the London offices.

[Metr0Land]

Thanks Michael Hodgson for a comprehensive reply.

 

As an aside I think most political parties have recognised/postulated the triple lock is probably unsustainable financially but now it's here any party getting rid of it will be labelled as Scrooge so it'll prob happen early in a Parliamentary term.

[Michael Hodgson]

39 minutes ago, petethemole said:

  My Dad may have known yours, if he worked in the London offices.

Unlikely.  He was in Longbenton when they were taking on their initial 10,000 clerical staff, welcoming groups of a hundred new boys at a time.  So he was known to a great many of the the new joiners, some of whom recognized him years later though he wouldn't remember them because of the sheer numbers. After a few years he moved  (for promotion) to the Foresty Commission and then to the UKAEA before returning to several other Government Departments, ranging from petrol rationing to business statistics.  He always tried to avoid London, but did meet a lot more people by commuting into Whitehall weekly (on the South Wales blue Pullman) for promotion boards.

.

[Michael Hodgson]

39 minutes ago, Metr0Land said:

As an aside I think most political parties have recognised/postulated the triple lock is probably unsustainable financially but now it's here any party getting rid of it will be labelled as Scrooge so it'll prob happen early in a Parliamentary term.

That's likely to be later this year, whoever gets in.   It will be more difficult for them if pensioners persistemtly pin the candidates down before the election.  But the excuse will be that we've had to backtrack on our promises because money so tight that we can't afford it (money is ALWAYS too tight).   The politicians' "moral" justifcation will be that it's discriminating against those of working age - who are currently contributing to GNP.  Same logic can apply to disability or unemployment benefits.  At best I can see some sort of formula being kept, but with modified (and less generous) criteria.

[The Johnster]

I think the nub of the problem is that we don't understand the components of the State Pension, which is bad enough, but that what is much worse is that the DWP have no real grasp of them either.  This is and has been for many years deliberate DWP policy for pensions and benefits, in order to appear to be struggling against the odds but actually to save the Treasury our money by denying it to us when we are entitled to it.  This works in two ways, firstly under the heading of Benefit Fraud prevention.  Since the system was introduced in the Forties, there has been a continuous surplus of unpaid and wrongly witheld pensions and benefits over the amount lost to fraud, by a factor of around seven times.  Fraud is deplorable, theft from the most vulnerable people in our society, and I have no problem with the combatting of it or stringent penalties and recovery methods, but perspective must be kept. 

 

Secondly, any system, no matter how flawed and needlessly complex, will eventually be made to work effectively and efficiently, so, under the guise of 'improving the benefits system' or 'ensuring that benefits are paid as a priority to the right people', the system is regularly altered and tampered with, and the DWP can't cope.  This is an attractive action for governments as it plays well with the voters, who (correctly) think that the system needs improving, but of course what actually happens, and is the intended result, is that an extra layer of complication is added, and things get worse.  One feels sorry for the front-line troops of the system, low-grade Civil Servants or Council staff, overworked and underpaid, and having to bear the brunt of claimants' justifiable frustration and anger with no support from their managers.  Some of them are snotty officious tw*ts, though, and while you can see why (next paragraphs), taking it out on clients who are trying to be patient is not the way to help, not that these characters have any intention of helping.

 

A major problem affecting state or local council benefits, though not pensions so much, is related to the fraud issue; any query regareding any benefit that the computer becomes aware of results in immediate, un-notified, and complete withdrawal of the benefit, leaving the claimant with the burden of entitlement proof before it is re-instated, and it can only be backdated six months, so any monies owing after that are lost to the already desparate claimant.  The burden should be on the DWP and/or council to establish that the benefit has been falsely, fraudulently, or mistakenly paid out, on the 'innocent until proven guilty' principle.  Enormous amounts of genuine hardship and deprivation are caused by this practice, against the background of some fraud, but keep in mind that witheld benefits directly and very adversely affects claimants, who end up in debt and vulnerable to loan sharks.  Witholding of Housing Benefit by councils can and does result in homelessness, and those made homeless in such a way are held to be 'intentionally homeless' because they fell behind with their rent, a matter which obviates any tenancy rights they may have had and renders them ineligible for social housing.

 

When I am finally appointed Great And Benign Total Direct Ruler Of The Nation, and it can't be long now, surely, one of the first things on the agenda is the scrapping of the DWP and the formation of a new body for benefits and pensions; one of the first principles of this new body will be that the burden of proving overpayment, incorrect payment, and fraudulent payment will rest with the new body, and that witholding of payments can only be by court order and with a minimum three months confirmed notification.  The new body will still be comfortably in profit on the fraud/unpaid benefit balance.

 

DWP.  I sh*t 'em.  Housing Benefit/Council Tax.  Sh*t them, too.

[johnofwessex]

AFAIK if you are 'contracted out' the 'Occupational Pension' has to be uprated in line with inflation up to 4% and anything over that is paid with the State Pension so increases come via your State not Private Pension.

 

If that makes sense..........

[pH]

What is this 'uprating in line with inflation' of which you speak? 😡

[billbedford]

If you don't think you are getting the full pension, it's worth applying for Pension Credit which will make up the difference between the pension the DWP calculates and the "full" Pension. 

[Michael Hodgson]

To qualify for pension credit you have to be over state pension age and on a low total income (less than the basic state pension) and it's means tested too so you must also have limited savings.

[johnofwessex]

If you get Attendance Allowance this can significantly increase your entitlement to Pension Credit.

 

If you have any basic queries do PM me

[fulton]

At least here in the UK once your pension is sorted you keep receiving it, my wife is in the German system, has just had one of her private pensions write to ask for a form to be signed my a doctor, to say she is still alive!!! she has only been retired a few years!!!

[Oldddudders]

1 minute ago, fulton said:

At least here in the UK once your pension is sorted you keep receiving it, my wife is in the German system, has just had one of her private pensions write to ask for a form to be signed my a doctor, to say she is still alive!!! she has only been retired a few years!!!

Living abroad I receive such requests regularly, both state and private pension funds recognising my demise might never be reported. A wide range of professionals are valid signatories - it will suffice that they have known me more than couple of years, and I have presented proof of identity. 

[APOLLO]

Pensions, State or Private are a complex subject and everyone has differing circumstances, rules etc for both.

 

I always decline to discuss or advise on pension matters with friends etc due to the above. I would hate to give wrong advice etc. I just about understand my own !!

 

Brit15

[Bernard Lamb]

1 hour ago, fulton said:

At least here in the UK once your pension is sorted you keep receiving it, my wife is in the German system, has just had one of her private pensions write to ask for a form to be signed my a doctor, to say she is still alive!!! she has only been retired a few years!!!

The Germany state pension people require my wife to send in a form every year. It seems to be the norm if you live in a different country to the one that pays the money.

Bernard

 

[2mmMark]

On 19/02/2024 at 11:29, fulton said:

At least here in the UK once your pension is sorted you keep receiving it, my wife is in the German system, has just had one of her private pensions write to ask for a form to be signed my a doctor, to say she is still alive!!! she has only been retired a few years!!!

That happens with UK occupational pensions paid to recipients living overseas.  The schemes have a duty to ensure that they're paying pensions correctly.

[AyJay]

All I understand about the state pension, is that the expected increase in the state pension will almost certainly be a pension cut! 
Since the increase will push a greater part of my combined state/private pension over the tax free threashold, I will pay more tax. When you add cost increases into the mix, my purchasing power will go down.

I once had a low-paid friend refuse a pay increase, saying that it will push him out of the tax free band and he will have to start paying tax, which would leave him with less pay, not more. So they gave him a higher-than-everyone-else pay rise to compensate him.  I don’t think that arguments would work with DWP.

[MartinRS]

36 minutes ago, AyJay said:

I once had a low-paid friend refuse a pay increase, saying that it will push him out of the tax free band and he will have to start paying tax, which would leave him with less pay, not more.

How does that work then? I thought you only paid tax on income above your Personal Allowance.

[woodenhead]

16 minutes ago, MartinRS said:

How does that work then? I thought you only paid tax on income above your Personal Allowance.

You do, but they’ve not been moving the point at which you begin paying tax.  It used to rise with inflation but it’s been frozen so it pushes more people into paying tax and a greater proportion of your pay becomes taxable.  
 

It’s a sneaky tax rise, a political ruse that you are not raising taxes when in fact you are.

[fulton]

9 hours ago, AyJay said:

 

I once had a low-paid friend refuse a pay increase, saying that it will push him out of the tax free band and he will have to start paying tax, which would leave him with less pay, not more.

Not just the tax implication, I had a spell working in a DWP office and a small increase can mean other benefits being reduced or stopped, then, if say your hours drop, you can be in a real mess sorting it out, if you are in a minimum wage job it can be a trap that's very difficult to get out of.