UK STATE PENSION

For individuals with both pre and post 5^th April 2016 national insurance contributions the state pension entitlement is the aggregate of:

•   state pension entitlement accrued up to 5th April 2016 @ £134.25 per week

PLUS

•   state pension entitlement accruing after 5th April 2016 @ £175.20 per week

The state pension entitlement accrued up to 5th April 2016 is referred to as the starting amount, ie. (a) above. This is best explained by way of example.

John started working in the UK in April 1992 and intends to return to Ireland in March 2019. Upon reaching retirement age, he will qualify for a UK state pension of:

• a) starting amount (pre April 2016)
  April 1992 to March 2016: 24 years
  24/30 x £134.25 = £107.40 per week

PLUS

• b) post April 2016
  April 2016 to March 2019 3 years
  3/35 x £175.20 = £15.02 per week

John’s total state pension when he retires in March 2019 will be (a) plus (b) or £122.42 per week.

Pre 5th April 2016
The current standard state pension payment from 5th April 2020 is £134.25 per week. To qualify in full for the weekly payment you had to have a 30 year full national insurance record ie.

30/30 x £134.25 per week

If you had less than 30 years, then you qualified on a proportional basis (subject to having the minimum 10 years). Therefore, if you had 10 years you were entitled to

10/30 x £134.25, or £44.75 per week.

Post 5th April 2016

With effect from 5th April 2020 the standard rate of state pension payment in the UK is £175.20 per week. However, to qualify for the full weekly payment you now need a 35 year national insurance record, instead of the previous 30 years. Therefore, an individual with 10 years national insurance record after 5th April 2016 (ie retired in April 2026) will qualify for:

10/35 x £175.20, or £50.06 per week

Individuals who have made contributions before and after 5^th April 2016 have a hybrid entitlement to the state pension of both pre and post 5^th April 2016 state pension benefits, key to which is the ‘starting amount’.

Amounts quoted above are based on the published UK state pension rates for the year beginning 5th April 2020.

Up to recently the state pension was payable from when an individual reaches the age of 65. In recognition of the significant increases in life expectancy and the increasing burden on the State to fund pensions, the state retirement age is being progressively increased. It is currently 65 for men.

State Pension age for women is gradually increasing from 60 currently to 65 by April 2019 (at July 2017 it is 63 years and 9 months).

After reaching parity the State Pension age for both men and women is being raised to 66 by 2020 and will increase further to 67 by 2028.

Similar provisions for deferring the State Pension age have already been implemented in Ireland but are in general, slightly more severe.

Triple-lock provisions in relation to state pensions were introduced by the Conservative-Liberal Democrat coalition in 2010 and is effectively a government commitment that the state pension will rise annually by the higher of:

• The rate of inflation (CPI)
• The increase in the average rate of Earnings
• 2½%

The ‘triple-lock’ has no legislative basis. It is only a political commitment and can be revoked at any time. However, it still effectively represents a government commitment of annual increases in the State Pension. No such guarantee or commitment exists in Ireland.

The annual increases under the "triple lock" can be seen here

Your National Insurance record can be improved by paying once-off amounts to secure added qualifying years. For pre-2016 years, a once-off payment of roughly £700 – 780 will add a qualifying year to your record. The specific amount varies slightly depending on the particular year you are buying.

Example: HMRC confirmed to Frank that he had 8 qualifying years on his record and sent him a letter stating the amounts required to buy each of the respective years. Ultimately Frank paid £4,726.80 adding a further 7 qualifying years to his National Insurance record.

As it originally stood, Frank was entitled to no state pension at all (<10 qualifying years) but, by adding 7 further years, he now qualifies for a weekly pension of £62.98 (€71.50 approximately or, €3,718 per annum). This represents truly excellent value for a number of reasons:

• In a little over 1 year of retirement he recovers the full voluntary contribution amount.
• To purchase a life annuity yielding €71.50 per week would cost roughly €95,000 - 100,000.
• A UK state pension recipient qualifies for a winter fuel allowance (£100-300pa).
• UK state-pensions will increase annually under the “triple-lock” provisions.

There is also the possibility of paying voluntary NI contributions at a lower Class 2 rate which counts equally towards the UK state pension, although terms and conditions apply. The Class 2 rate is typically about 20% of the cost of the Class 3 rate, c.£160 for each additional year instead of £780.

The option to make voluntary contributions normally extends back only 6 years. However, by concession HM Revenue & Customs are accepting payments for 13 years of arrears, 2006/07 to 2018/19 inclusive. The concession lasts until April 2023 when the maximum window of 6 years of arrears will be restored. Therefore in the current year, 2019/20, an individual can pay back arrears as far as 2006/07. From April 2023, they can only arrears as far as 2017/18.

It is not possible to make voluntary contributions for years prior to 2006/07.

As each year passes the opportunity to make voluntary contributions shrinks. Hence the urgency !!