Changes to State Pensions from April 2016
15 January 2016
The Government is about to change the way state pensions are made up. Every pension is assessed individually, so the following should only be used as a simplified summary.
Here is what you need to know:
Currently (until April 2016) there are two elements of state pension provision. The first and lower tier is the basic state pension and all workers (including police officers) pay National Insurance Contributions towards the accrual of this benefit. There is also the upper tier of state pension provision, previously (up until 6th April 2002) known as State Earnings Related Pension Scheme (SERPS) and more recently known as S2P (State Second Pension). In order to accrue this additional element of state pension, it is necessary to pay a higher rate of National Insurance Contributions.
However, since 6th April 1978 it has been possible for some schemes to be contracted-out of the provision of the upper tier of state pension provision. In order to qualify to be contracted-out, schemes had to meet certain criteria.
As a result of being contracted-out, both members and their employers currently pay National Insurance Contributions at a lower rate and members do not accrue any upper tier state pension.
All police officers have been contracted-out up until this point as on 6th April 2016 the law is changing - it will no longer be possible for any scheme, be that in the public or private sector, and its members to be contracted-out. This change coincides with a further linked change from a two tier system to a single tier state pension which applies to anyone reaching state pension age on or after 6th April 2016.
Summary of the new single tier pension:
• The new single tier state pension will only impact on men born on or after 6th April 1951 and women born on or after 6th April 1953, i.e. those people who reach state pension age (SPA) on or after 6th April 2016.
• The Qualifying Years required for a full pension will change from 30 years under the existing system to 35 years under the new system from 6th April 2016. The impact that this will have on serving and recently retired officers below SPA at that point will vary depending upon their individual circumstances.
The site accessible through the link below has other links to further resources to enable people to find out details of their entitlement.
The immediate impact on serving officers
National Insurance Contributions
Until April 2016, those officers who are members of the police schemes will have been contracted-out from the payment of national insurance contributions at the full rate. The abolition of contracting-out means that on and from 6th April 2016 no scheme member will be able to pay National Insurance Contributions at the lower rate, but will instead pay at the same higher rate as everyone else in the UK.
This means members of all the police schemes will be paying National Insurance Contributions at a rate which is 1.4% higher than they currently are, on earnings between the Lower Earnings Limit and the Upper Accrual Point (these are £155 and £770 per week for 2015/16).
This will affect the amount of take-home pay. We expect more information to be released by the Home Office in the lead up to the changes.
Impact on retirees: accrual of Single Tier State Pension
You may have read stories in the press that suggest if you reach state pension age on or after 6th April 2016, you will be entitled to the single tier state pension at its full rate (which will initially be £155.65 per week) provided you have worked and paid National Insurance Contributions for thirty years. However, this is not always the case.
Where those reaching state pension age on or after 6th April 2016 (including police officers) have been members of contracted out-schemes, they have paid less than the full rate of National Insurance Contributions. So, the years of membership in police schemes will not count in full on a year for year basis towards what is now the thirty-five 'Qualifying Year' period necessary to receive the new single tier state pension, at its full rate.
PFEW has been asking for more information to be released for many months and we have written to the Home Office and copied Elizabeth France, Independent Chair of the Pension Scheme Advisory Board into the correspondence.
PFEW has made representations on the changes but, as this is a national scheme, covering all employees (not just police) we have no powers over it and are unable to provide members with their own individual pension quotations.