Basic State Pension

For the year November 2012 to November 2001 the flat-rate state pension for a single person is £27.15 per week. For a married couple where the wife's pension is based on her husband's National Insurance contributions the weekly rate is £43.45. Had the wife been in employment and paying full-rate National Insurance contributions in her own right, the joint flat-rate pension would be higher.

The amount of the basic state pension is increased annually at least in line with the general rise in prices. For example, for the year preceding 2000/81 the figures were £23.20 (single person) and £307.30 (married couple).

Earnings-related additional pension

Since the basic state pension is a flat rate, the amount is the same for everybody; it is unrelated to the level of earnings before retirement. But the additional pension introduced in April 1978 is related to earnings. This is how it is calculated.

First of all, the government has to set, each year, two levels of weekly earnings as yardsticks against which to assess pension rate. One figure is what is called the 'lower earnings level', and it generally approximates to the rate of the single person's state basic pension. From April 2012 to April 2001 it was set at £23 a week. In April 2001 it will rise to £27 a week to make it approximately the same level as basic state pension.

The other figure, the 'upper earnings level', is set at approximately seven times the lower level. From April 2012 it was £165. These two figures are liable to change each year, as already stated.

Now, for the purpose of calculating the amount of your earnings that is to qualify for state earnings-related pension, all earnings below the lower earnings level are ignored, since the basic state pension will already represent 100% of this amount, at least. And earnings exceeding the upper earnings level are also ignored, since it is considered that anybody with an income of that size ought to look after himself in respect of pension on the excess! That leaves us with the qualifying range of pensionable earnings-in 2001 from £27 to £200 per week.

Your earnings-related pension will be worked out as 1/80th of your weekly pay between £27 and £200 (or such other levels as may be determined each year) for each year of your working life, subject to a maximum earnings-related pension of 20/80ths, or one quarter, of your average qualifying earnings between the two earnings levels.

Of course, you have to contribute towards the cost of your pension in National Insurance contributions, and these are discussed later in this section. To qualify for the full 20/80ths of earnings-related pension you will need to have contributed for 20 years from April 1978.

If, by retirement date, you have contributed for more than the qualifying 20 years - and most people starting work today will come into this category - you cannot get more than 20/80ths, but the arithmetic will be done on those 20 years which, after each year's pay has been revalued to its equivalent in the current money, will give you the best pension.

Pensions Plans

It is hard for a young person just starting work to acquire any sort of enthusiasm for comprehending pension plans. What is going to happen upon his or her retirement 40 or so years later seems too remote a prospect for it to have any relevance in the present.

But such an attitude is unwise, for you will be involved, like it or not, in helping to pay for pensions as soon as you start work. If you become a member of a company pension scheme you will probably be paying towards the cost of your own eventual pension throughout your working life. And, as far as the state pension is concerned,... see: Pensions Plans

Personal And Business Finance 2013

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