State Benefits

State Benefits

Too important to leave to chance!

Possible sources of State retirement income

• Basic State pension• Graduated pension• State Second Pension (previously SERPS)

• Pension Credit means tested

Which camp do you fall into?

Reach State Pension Age before

6 April 2010?

Reach State Pension Age on or after

6 April 2010?

Which camp do you fall into?

More service neededto achieve maximumBasic State Pension

Minimum BSP payable - 25% of full rateHRP counts till child 16

Easier to earn fullBasic State Pension

(30 year rule)Even modest level of

BSP payableHRP counts till child 12

Basic State Retirement Benefit changes 6 April 2010• Pre April 2010

– Minimum Qualifying Years target to achieve full Basic State Pension

• Men 44 years and also women with State Pension Age of 65

• Women 39 years with State Pension Age of 60

• In between 39 and 44 for women born between April 1950 and April 1955

• From April 2010– Minimum Qualifying Years

target to achieve full Basic State Pension

• 30 years for everyone

Basic State Retirement Benefit changes 6 April 2010• Pre 6 April 2010

– Minimum Basic State Pension payable

• 25% of maximum rate

– Autocredits between 60 and 65

– Home Responsibilities Protection credits

• Until youngest child is 16

• Reduce the Qualifying Years target

– Adult Dependant Increase (ADI) pension available

• From 6 April 2010– Minimum Basic State

Pension payable• Any amount payable

– No autocredits

– Home Responsibilities Protection credits

• Until youngest child is 12

• Treated as Qualifying Years including weeks

– ADI phased out from April 2010 for existing claimants

Home ResponsibilitiesProtection and gaps• In 2008 the Government launched an

investigation to find why thousands of women were not receiving the right level of pension

• Problem relates to failure to highlight entitlement to HRP on a woman’s NI record

• Also gaps for years between April 1996 and April 2002 can be made good (to ‘buy back’ the missing years at a special rate)– The Pension, Disability and Carers Service is reviewing the NI

records of a group of around 73,000 women who could use the special terms to claim some backdated pension for a past period

Basic State Retirement Benefit changes 6 April 2010• Pre 6 April 2010

– Winter Fuel Allowance• Payable Winter after

reaching age 60 provided qualified in previous September

• Pension Increases until change– Based on RPI

Annual change as reflected in September RPI index

• From 6 April 2010– Winter Fuel Allowance

• Will rise incrementally to 65 between 2010 and 2020

• Pension increases after change– From 2012 at earliest -

restore link to National Average Earnings for all in receipt of pension including those reaching SPA before then – subject to affordability

Things to consider

• Impact on your budgeting– when will my wife’s / partner’s pension become payable?– what will be payable

• Basic State Pension• Additional Pension (SERPS / S2P)• Graduated Pension if you were in that scheme before 6 April 1975

– the changes to future State Pension Age increasing • 66 from 2024 to 2026• 67 from 2034 to 2036• 68 from 2034 to 2046

– if planning ahead what impact if any will my savings / pension have on means tested Pension Credit at 60 and 65?

Things to consider

• Impact on your budgeting– how much will be paid and when will it increase?– level of inflation protection (current and from a future date)– impact on my occupational pension benefits if they are subject to

some adjustment for State benefits (State levelling or ‘claw back’)

– can build up more State pension after you leave (S2P) until State Pension date

• Earning above the Lower Earnings Limit

• Carer credits

• Enhanced benefits for lower earners

Things to consider

• Make sure that the figures are correct!• Ways to maximise benefits and plug any gaps

– Make sure you don’t pay Class 3 when no need to– Ensure you don’t pay NI on future ‘pay’ under State

Pension Age! • Ensure you claim benefits that are due

– Winter Fuel Allowance– Married couple’s additional pension (form of safety

net)– Pension Credit (maybe your parents now and you in

time)– Attendance Allowance (later in life)

Job Seeker’s Allowance• Payment

– £ 64.30 / week (contribution based)• Paid for 6 months ( max.... 182 days)• NI credits awarded - even if JSA not payable• Occupational pension of £50 / week or more will

affect amount payable, irrespective of age. May mean no JSA payable

• Changes from October 2008 as part of Green Paper proposals ‘No one written off: reforming welfare to reward responsibility’

Employment & Support Allowance

• Introduced on 27th October 2008• Replaced Incapacity Benefit for new claimants

with a focus on a can do attitude not what someone cannot do

• Expected to be a temporary benefit for the vast majority of individuals

• Anyone already receiving Incapacity Benefit will be transferred to ESA between 2009 and 2013 after a medical assessment (Work Capability Assessment)

Employment & Support Allowance

£64.30 a week (single, all ages)

£100.95 a week (couple all ages) Couple rate income tested only

£25.50 a week

£5.35 a week

If qualify for Enhanced Disability Premium or Severe Disability Premium

Assessment Phase Main Phase

£64.30 a week (single, over 25)

£100.95 a week (couple, over 25)Couple rate income tested only

Work Related Activity Component

Extra support for those in Support Group

BasicRate

State Basic and Graduated Pension- rates (maxima)• Basic (own right) - £ 95.25 / week

• Married woman ( on husband’s record) - £57.05 /week

• Graduated pension - depends upon number of units ‘earned’. Unit value 11.53p each week

Basic State Pension – historySingle person rate - maximum

1997199819992000200120022003200420052006200720082009

£62.45 a week£64.70 a week£66.75 a week£67.50 a week£72.50 a week£75.50 a week£77.45 a week£79.60 a week£82.05 a week£84.25 a week£87.30 a week£90.70 a week£95.25 a week

Qualifying Years needed for full Basic State pension• Man’s working life

16-6549 contribution years

• Contribution years for 100% basic state pension44 years

• Woman’s working life16-60*44 contribution years


* Changes gradually from 2010 until 2020 when it will be the same as for a man. Women born before April 6, 1950 are unaffected

Qualifying Years needed for full Basic State pension

• Man’s working life16-6549 contribution years


• Woman’s working life16-60*44 contribution years


* Changes gradually from 2010 until 2020 when it will be the same as for a man. Women born before April 6, 1950 are unaffected

Changed from 6 April 2

010 when a

30 year test comes in!

Autocredits

• 60-65 automatically credited

• Only if – no liability for NI and– not spending over 6

months abroad in each tax year

– you reach State Pension Age before April 2010

Autocredits

• 60-65 automatically credited

• Only if – no liability for NI and– not spending over 6

months abroad in each tax year

– you reach State Pension Age before April 2010

Disappears after 6 April 2010

What’s your magic number?A quick test of understanding – current ‘rules’

When am I fully paid up?

• Example

– Man started working in tax year when 16

– No ‘gaps’ in record

When am I fully paid up?

When I’m 55!

Options ( before State Pension Age)• Further employment / self employment

• Unemployment ( Job Seeker’s Allowance)

• Illness (Employment & Support Allowance / Incapacity Benefit)

• Non-employment (Class 3 NI contribution - £12.05 a week)

• Auto-credits ( men 60 -65)*

Some other angles

SPAHusband

Wife

Own right pension

Top-up to60% of husband’spension – if greater

Wife as a ‘full rate’ contributor

SPA

SPAHusband

Wife

Receives greater of her own pension or 60% of husband’s pension.


SPA

SPA

Husband

Wife

Receives greater of her own pension or 60% of husband’s pension.


SPA

SPA

Husband

Wife

SPA

Wife paying ‘reduced rate’ NI

No pensionin own right

60% pensionbased on husband’s NI record

Adult Dependant Increase

• Available to increase a man’s or woman’s State Pension if another adult is financially dependent upon them

• Since the 1980s, ADIs restricted to recipient’s spouse or person having care of the recipient’s children– Restrictions for a woman claiming for her husband

• To claim for her husband she must have been entitled to an ADI of long-term Incapacity Benefit immediately before reaching SPA

• Dependency test– The dependent does not have earnings or an occupational /

personal pension above the standard rate of Jobseeker’s Allowance (£64.30 a week) , and

– Not receiving benefit in their own right above £57.05 a week

Adult Dependant Increase

• From 2010 ADIs were set to become available on the same basis as husbands claim for their wives for – Women for their husbands– People in Civil Partnerships

• From April 2010 ADIs will no longer be awarded but all existing entitlements will be protected up to 2020

Home Responsibilities Protection• Available only from 6 April 1978

• Protects record for:-– main child benefit payees ( child under 16)– those looking after someone receiving

specified benefits ( 35 + hours)– those receiving income support while looking

after a sick /disabled person at home

Home Responsibilities Protection• Cannot reduce qualifying years for full

Basic State pension below 20* ‘old terms’

• Cannot be given for years covered by reduced rate NI contribution election

• From April 2002 ‘carers’ and people receiving child benefit for a child under 6 can build up State Second Pension too

Home Responsibilities ProtectionSome examples

Current Rules(Pre 6 April 2010)

No HRP

6 April 1978

QY or

HRP

QY or

HRP

QY or

HRPWoman with Full Rate NI liabilityat start ofmaternity leave

Child born

HRP

No HRP

6 April 1978

No HRP

No HRP

QY or

HRP

QY or

HRP

QY or

HRPWoman with reduced rate NI liabilityat start ofmaternity leave

Child born

HRP

Home Responsibilities ProtectionAn example (Pre April 2010):

Left school at 16 and started working straightaway

Married 5 years later

Stopped working 3 years later for confinement(had two children)

Returned to work when 42 (Full time)

Home Responsibilities ProtectionYears in the ‘bank’?

8 years before confinement - 16 to 24

18 years from return to work to State PensionAge (60) - 42 to 60

26 years so qualifies for a Basic State Pensionof 26 / 39 x £95.25?

Home Responsibilities Protection

26 years

plus

HRP years from April 1978 till youngestreaches age 16 - say 9 years

So qualifies for a Basic State Pensionof 26 / (39 - 9) x £95.25

Home Responsibilities Protection ‘new terms’

26 years

plus


So qualifies for a Basic State Pensionof 26 + 9 / 30 x £95.25 So entitled to 100%


Another example (Pre April 2010):

Stayed on to take ‘A’ levels

At University for 3 years

Married and worked for 5 years before starting afamily

Never returned to work


Years in the ‘bank’

3 years - 16 to 18

University years - blank

5 years while working

So appears not to qualify for any Basic State Pension as only 8 years in the ‘bank’


But….

8 years

plus


So qualifies for a Basic State Pensionof 8 / (39 - 15) x £95.25

Home Responsibilities Protection ‘new terms’

But….

8 years

plus


So qualifies for a Basic State Pensionof 8 + 15 / 30 x £95.25

Home Responsibilities Protection• Changes from 6 April 2010

– HRP replaced by new weekly credits – will not reduce the‘Qualifying Year’ target

– Entitlement will be aligned with future credit counting until the child is 12*

– HRP earned before 6 April 2010will be converted and HRP earnedafter the child’s 12th birthday willstill continue to count

Divorced people• Can use ex-spouse’s

contribution record if it produces a higher Basic State pension

• Cannot use if re-marriage occurs before State Pension Age

Widows / widowers

• Entitlement to pension protected in a similar way to that of divorced people

Pension forecast• Forecasts

– Online

– Telephone 0845 3000 168

– Submit form BR19

• Forecast will give details of– Basic State pension

– SERPS / State Second Pension

– Graduated pension

• Will indicate if Basic State pension can be increased by paying NI for past or future periods

Pension forecast / claim• If you have either live abroad or have worked

overseas then contact the International Pension Centre for any claims

• If you are living in any EEA country you should claimas follows:-– If you have worked in the

country you are now living in thenclaim through the pension institution in that country

– if you have not worked in the country you are now living in then claim your pension direct from the International Pension Centre

Claim pension

• Previously the Pension Service wrote 4 months before State Pension Date to invite someone to claim their pension

• Now they can take applications over the telephone 2 months before expected claim date

State Pension claimline 0845 300 1084

National Insurance contributionsafter State Pension Age• If employed

– You must apply for an Age Exemption Certificate (CA4140)

• Visit HMRC website (www.hmrc.gov.uk)• Telephone 0845 302 1479 (lo-call rate)

– Then pass it to your Employer

If you do not obtain the Age Exemption CertificateYour employer will continue to deduct NI!

Deferral of State Pension

• From April 2005 improved terms– no limit on the deferral period 5 years before– enhancement improved to 1% for each 5

weeks deferred (appx 10.4% for 1 year) 7 weeks before

Deferral of State Pension of £100 a week

Years pension deferred

Extra State pension Extra pension paid over time

Each year After 5 years

1 £ 540 £2,700

2 £1,080 £5,410

3 £1,620 £8,110

4 £2,160 £10,820

5 £2,700 £13,520

Source: Deferring your State Pension: SPD2

Deferral of State Pension• From April 2005 improved terms

– new option to take a taxable lump sum at time State pension claimed with normal level of State Pension instead of enhanced pension

• deferral must be for 1 year at least• lump sum calculated using rate of interest about

2% above Bank of England Base Rate

State Pensions - rates (maxima) ‘earnings related’• State Earnings Related Pension - 25% of revalued Upper Band

Earnings before 2000 then falling away to 20%

• April 2002 State Second Pension replaced SERPS

• From 6 April 2009 Upper Earnings Limit applies to NI calculation and a lower ceiling set (Upper Accruals Point) for calculation of State Second Pension - a ‘stealth tax’ of 11% for those earning between £770 and £844 a week in 2009-10

• Pensions Act 2007 changes coming into effect in tax year 2010-11 will see further reduction in accrual rate

Subject to any deductions for periods of ‘contracted-out’ employment

Pension Credit

• Extra cash for single pensioners up to £20.40 a week

• Extra cash for couples of up to £27.03 a week

Claim Line 0800 99 1234

Pension Credit

• Top up to £130 a week ( £198.45 a week for a couple)

• Reward for savings with additional cash at an initial rate of 60p reward for every £ of savings income

• Pension credit is non-taxable

Additional benefits

• £10 Xmas bonus– tax free in first week of December

• Winter Fuel payment £250 (£400 if aged 80 or more Xmas 2009)

• Free – NHS prescriptions and eye tests from 60 – local public transport nationally – TV licence once 75 – Free passport when you are 77

Free bus travel and concessions• If over 60 and ‘eligible disabled’• Applies to free off-peak travel on local buses

anywhere in England• Does not apply to certain services

Plus

• Separate half-price coach concession for older and disabled people that many coach operators participate in

Additional benefits

• Age 80– Additional 25p weekly – Over 80 pension

• If not receiving a Basic State Pension or it is at a low level it will be topped up by the ‘married couples’ supplement (£57.05 in 2009-10)* provided

– Living in the UK when you claim– Must have lived here for 10 years or

more in any 20 year period after your 60th birthday (living in the EU counts)

Self-employment• Need to register as self-employed• ‘Small Earnings Exception’ if

profits under £5,075 a year• Contribution ( Class 2- flat rate

£2.40 / week)• Class 4 contributions

( really a tax)– 8% payable on profits between

£5,715 and £43,875 and 1% above £43,875

Self-employment• Employ your spouse or

partner in your business and their pay is tax deductible in arriving at your profits

• Business expenses reduce profits– PCs, machinery, software– Running expenses even if using

your own home

Class 1 National Insurance contribution• Lower Earnings Limit - £95 a week• Upper Earnings Limit - £844 a week*

• Primary Threshold - £110 a week

• Employee’s primary rate of NI– Nothing up to £110 a week– Then 11% on pay between £110.01 and £844 a week– Then 1% above £844 a week

*But for S2P benefit purposes the upper limit for eligible earnings is set at £770 a week

£95 /week

£110 /week

One full-time employment of £200 / week

£95 /week

£110 /week

Two part-time employments (£100 /week each)

Attendance allowance• 65+ and not means tested• For people with frequent need of personal

care• 6 months qualifying period, unless

terminally ill• £ 47.10 / week where day or night care

needed• £ 70.35 / week where 24 hour care

needed

Attendance allowance

Invalid Care Allowance is available forthose caring ( 35+ hours a week) for someone receiving Attendance Allowance.

It can be affected by other State benefitsand / or earnings

Bereavement benefits

• Bereavement payment– £2,000 lump sum tax free– You must have been under State Pension Age at the date of

death, or– Your husband, wife or Civil Partner was not entitled to a

Category A (own right) Basic State Retirement pension when they died

– You do not qualify if you• Were divorced from your late husband / wife or the Civil Partnership

was dissolved at the date of death

• You are living with another person as husband, wife or Civil Partner

• You are in prison

• Claim after more than 12 months

Bereavement benefits

• Bereavement allowance– Weekly amount, dependent upon your age at the time of death

or when Widowed Parent’s Allowance stops, paid for up to 52 weeks

– You must have been under State Pension Age at the date of death, or

– You do not qualify if you• Were under 45 years of age• You are bringing up children – Widowed Parent’s Allowance applies• Were divorced from your late husband / wife or the Civil Partnership

was dissolved at the date of death• You are living with another person as husband, wife or Civil Partner• You are in prison• Claim after more than 3 months

Bereavement AllowanceYour age at death of spouse / Civil Partner Maximum weekly rate (2009-10)

45 £28.58

46 £35.24

47 £41.91

48 £48.58

49 £55.25

50 £61.91

51 £68.58

52 £75.25

53 £81.92

54 £88.58

55 to State Pension Age £95.25

Widowed Parent’s Allowance

• Must be under State Pension Age to receive £95.25 a week (2009-10) - taxable

• Must be entitled to Child Benefit*• A widow and either

– expecting your late husband’s baby, or– assuming you were living with your late husband before his

death expecting a baby as a result of artificial insemination by donor or in vitro fertilisation

• A surviving Civil Partner (woman)– living with your Civil Partner before her death and expecting a

baby as a result of artificial insemination by donor or in vitro fertilisation

Details needed for a Basic State Pension assessment (1:1)• First name

• Date of birth – you and husband

• Dates– started / stopped/ restarted work– children were born– when started / ended paying married woman’s

reduced rate National Insurance– any other breaks

State Benefits

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Transcript of State Benefits