My state pension is going up by 16.6 PER CENT! Is this an error?

I was born in 1945, turned 65 in April 2010, and am receiving a national pension.

Between 2010 and 2022, my annual pension statement showed that my “pre-1997 Supplemental Public Pension” amount was less than my contractual deduction, and therefore my contribution to my public pension. The net addition was recorded as zero.

We have just received our upcoming annual report for 2023-2024. The additional public pension exceeds the out-of-contract deductions by an amount that produces £11.07 per week added to my basic public pension.

My question is how this situation can arise. If my pre-97 contributions were overridden by his 2010 to his 2022 contractual deductions, it would seem reasonable to assume that this would always be the case.

I’m wondering if I should have received some additional state pension each week since I was short by the state the previous year.

After sharing information with a former work colleague, I know that some of us are receiving additional weekly public pensions even though we were all on contracts for the same number of years. I would appreciate it if you could shed some light on the matter.

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Steve Webb replied: A few questions were raised by those who were surprised to see public pensions rise above 10.1% of headline inflation.

Indeed, the figures you provided show that your public pensions will rise by 16.6% this April, but your corporate pensions have not risen above inflation.

To understand why this is happening, we need to look “under the hood” at how the National Pension operates.

What does your national pension consist of?

Affected people reached pensionable age before 6 April 2016 and are covered by the ‘old’ public pension system.

Under the old system, pensions had two main components. Basic pension and “additional” pension.

The full basic pension in 2022/23 was £141.85 and will rise by 10.1% to £156.20 in 2023/24.

Complicating matters are the ‘additional’ public pensions and entitlements built up under the State Income-linked Pension Scheme (Serps), in particular between 1978/79 and 1996/97.

All other components of the supplementary pension have risen in line with inflation.

Under Serps, additional public pensions depended on how much you earned and how many years you contributed.

Unless you are enrolled in another pension plan (e.g., a work pension or a personal pension), you will only receive a SERPs pension when you retire, which will also rise in line with inflation.

But millions of people had another pension. If this was a salary-related workplace pension, it was common for such schemes to be “commissioned” by Serps.

Outsourcing was a process aimed at avoiding double provisions when it comes to paying both an income-linked pension from the state and an income-linked pension from a company.

To avoid this situation, the scheme may be “out of contract” with Serps. Under this arrangement, the worker and employer paid her NI contributions at a reduced (“non-contractual”) rate.

In return, the scheme had to pay, at retirement, a pension equal to or greater than that which the state would have provided had no contract been in place. This was known as the Minimum Guaranteed Pension or GMP.

What happens when you reach the state pension age?

When you retire, the government will calculate the Serps pension you would have earned if you hadn’t contracted between 1978/79 and 1996/97, deduct the GMP and pay you the rest. .

When you first retired, the GMP the system had to pay you exceeded the Serps you would have earned, so the additional public pension for this period was zero.

This is very common and can occur if your GMP reassessment rate from the year you earned your GMP to retirement exceeds the reassessment rate for your Serps pension until retirement.

However, the fact that this calculation is done for each year of retirement is less appreciated.

Each year they calculate the Serps pension you would have earned if you stayed in the state plan, calculate the GMP the plan would have to pay you in return, and pay the difference (if any). increase.

Every year since retirement so far, the GMP has exceeded the Serps figures, so in the period up to 1997 there were no additional public pension payments.

What is the impact on the national pension from April?

Things are different this year, mainly because of the very high inflation we’ve seen recently.

Doing the Serps calculations earned by DWP, this increases with a full inflation rate of 10.1% compared to last year.

However, your company’s pension plan is not obligated to increase your GMP by 10.1%.

In service from 1978/79 to 1987/88, the scheme was not obliged to provide an index of GMP after retirement.

When inflation was very low, the GMP increase was only slightly less than the SERPS available, so it didn’t make much of a difference.

However, this year there is a gap between the SERPS that will be earned and the GMP that the scheme will be required to pay.

The numbers you provided show that your GMP went up by 1.3%. This means that for the first time your “gross” Serps number will exceed your GMP and you will be paid the difference.

What will happen in the future?

Assuming the government increases Serps with future inflation and your GMP rises at a lesser rate than inflation, you will continue to receive additional public pensions for the remainder of your retirement through 1997. Become.

As you can see, this does not mean that there was an error early on in the retirement.

So far, the GMP that the scheme promised to pay you was actually more than the Serps annuity you would receive, so there was no net payout for this period.

However, different regulations on how Serps and GMP increase at retirement mean that they now receive replenishment from the state in addition to GMP and will continue to do so.