Pension credit

Norah, if people can't afford to pay full pension contributions, being able to pay into ISAs is unlikely to be the solution. It may be simple, but it's not for everyone.

The problem, IMO, is twofold. The first thing is that wages in the UK are low, and if there is a move to raise minimum wage upwards there is an outcry from those whose profits depend on others working for little. This means that there are many people who can't afford to pay into occupational pensions, so rely entirely on the SP.

The second problem is that after decades of the welfare state picking up the tab for those who choose not to work, a pension is seen by many as a right of passage - you reach SPA and you are paid for doing so, regardless of contributions. This attitude is being challenged, and the narrative now is that people have to pay in to get back (the same narrative that is used about people claiming other benefits).

As we are now an ageing society, pensions are expensive for the treasury, and whereas it would be lovely to be able to pay everyone a decent income in retirement, there has to be a difference between those who have paid in and those who haven't. If that difference is not there, resentment and accusations of there being a 'two tier society' ensue. Nobody likes seeing others being given what they have had to work for.

Things are complicated, however, by the fact that older people have to live. If they haven't made provision for their older age they can't be left to starve, and the added benefits of being on pension credit mean that they are brought to the same level (or often higher) than those who have a small occupational pension, and we are back to the resentment and accusations. The social care system makes things worse, as those with relatively small savings see others with none getting free care while they have to pay until they, too, have nothing.

But what's the solution? To bring back workhouses or other punitive measures to force people into saving? There will still be the problem that not everyone can afford to save. Let people starve? Not something most of us would like to see. Make people work until they die? That is already happening in some cases, and younger people who realise that this is likely to be what they are facing are even less keen on paying taxes for older people who may be better off than they are. Renege on the 'deal' (and yes, I know there is no written contract, before someone rushes to point that out) that if you pay in you will get a pension, and means-test the SP? Why would anyone bother to pay in that case? Of course most of us have no option - it is always those on PAYE who underpin the contribution system - but there would be widespread fury and discontent.

It's a thorny problem, which is why it hasn't been solved before now. Up to a point, the 'if you pay nothing in, you get nothing out' is 'fair', but unless there is a massive change in the way the UK has operated since WW2, that will always be weakened by the fact that we don't want to see people starve or go without essentials.

SporeRB01 It is unfair but that is how the cookie crumbles.

When it comes to pension, we all have been given bad advice.

Precisely why we choose maximum in ISA accounts. No advice needed. Tax free earnings growing nicely, quite simple really.

My OSP is higher than I would get on NSP. As I did not have enough contributions for a full pension, it is now topped up since my husband died, based on his contributions.

SporeRB. You are right. It is possible to burn off past contracting out with each additional year worked post 2016. This paper from Steve Webb explains - page 17:

Why is money being deducted from my state pension? The mysteries of CODs, COPEs and Contracting Out explained.

www.lcp.com/media/1150050/why-is-money-being-deducted-from-my-state-pension.pdf

In 2000, there was a Parliamentary debate about the issue of the small stamp tabled by the same Steve Webb who was later to become Lib Dem Pensions Minister under the Coalition.

The then DSS Minister was Jeff Rooker (with Audrey Wise they were the Labour MPs who pushed in the 1970s for the tax personal allowance to be indexed by inflation).

Rooker made the very valid point:

Single men pay the same rate of national insurance as married men. The stark reality is that married couples who rely on the pension of the man are subsidised by the contributions of single people. Although no one puts it quite like that, that is how the system works. There is no differential between the rate for single people and married men. A married man will collect 160 per cent of pension, including 60 per cent for his wife, if she is not contributing.

hansard.parliament.uk/commons/2000-05-23/debates/5243214e-508e-40e6-ba68-6d9267570f8a/PensionRights(MarriedWomen)
hansard.parliament.uk/commons/2000-05-23/debates/5243214e-508e-40e6-ba68-6d9267570f8a/PensionRights(MarriedWomen)

At current rates that pension is can be up to £105.70 pw for which no contributions were made by either spouse.

That's something else gone under new State Pension rules.

I opted out of the local government pension scheme when I had my daughter, since we need the money, realised my mistake and re-joined a few years later. It was during the Thatcher years where the Tory government actively encouraged people to opt out of lgps for a private pension which was a very bad advice.

Oh yes, SporeRB01 and a lot of men did this too. It was, generally speaking, very poor advice. DH was advised to do this but thankfully we managed, after a struggle, to get the works pension reinstated into his old firm's scheme. It was a huge mis-selling scam at the time.

It is unfair but that is how the cookie crumbles.

When it comes to pension, we all have been given bad advice.

I opted out of the local government pension scheme when I had my daughter, since we need the money, realised my mistake and re-joined a few years later. It was during the Thatcher years where the Tory government actively encouraged people to opt out of lgps for a private pension which was a very bad advice.

Thanks to Gransnet, I found out about contracting out. If I continue paying another 6 years on top the mandatory 35 years of NI, I should get the full state pension in a few years time.

IMHO, the new state pension is very generous for the national insurance people paid in. I have an overseas state pension; to get the equivalent of the new state pension ie £12005 per year, you need a pension fund of £160k per person.

If the state pension is ring fenced and you get what you put in, many more women will be poorer at retirement age.

Doodledog

Allira

I completely understand that, but to take the jam today then complain it’s not there tomorrow is disingenuous, surely?
Who is complaining if there was indeed a choice?
No-one that I can tell.

In the case of Civil Servants it wasn't a choice anyway, it was just returned in the final salary.

There are numerous complaints on here that there is a 2-tier state pension, along with further complaints that those on the OSP get less than those on the new one.

My point is that this is not true. Some on the OSP get less than some on the new, but it is also true that some on OSP get a lot more than those on even the full rate of the NSP, an by no means everyone on the NSP gets the full amount.

There are also complaints about the fact (which I am not disputing) that many women were encouraged to pay lower rates of NI on marriage, and/or to take back their superannuation payments, which reduced their pension later on. My own recollections of the superannuation scheme are that it had nothing to do with marriage or babies (although they may have been the most usual reasons for women getting the money) but was offered to all (male or female) who had fewer than X years' service when they left. It was, when I claimed mine in approx 1978, optional, and it was always an option to pay the full NI rate, even though it may not have been easily afforded.

I understand people regretting those decisions, and I fully understand that few people in their 20s are looking ahead to retirement, but I don't understand why people would expect gifts from the government or their employer in the form of cheaper NI and a 'bonus' payment just for getting married. It doesn't make sense.

If decisions about superannuation were made without consent or explanation before 'my day', there is a case for setting up a pressure group to have occupational pensions topped up to what they would have been had the money stayed put. In my own case I was leaving the CS, and had only accrued about three years worth of payments made on a junior salary, so even after all this time it would be a few pounds a year, but for those on higher salaries it could be more.

Lower NI payments were definitely optional. I know some women who chose to make them and others who decided against. How would it be fair to the latter group to make up the pensions of the former to the same level? The lower payments continued after the scheme was scrapped, so a significant amount would have been saved by those making that choice. It would not be fair to ignore that, and increase their pension to the same level as colleagues who would also have had high mortgages and expenses, but chose to pay the higher rate. As I've said, the scheme was in place when I started work, but not when I married, and there was a lot of talk about it when it was about to be scrapped, so although I didn't make the choice myself I was part of several conversations about it.

Doodledog Excellent clarification.

Everyone has different opinions - rental home or buy at interest, purchase better or make do, work or sahm, prioritize the future over the now. Government is unable to make choices fair given the variables.

Allira

^I completely understand that, but to take the jam today then complain it’s not there tomorrow is disingenuous, surely?^
Who is complaining if there was indeed a choice?
No-one that I can tell.

In the case of Civil Servants it wasn't a choice anyway, it was just returned in the final salary.

There are numerous complaints on here that there is a 2-tier state pension, along with further complaints that those on the OSP get less than those on the new one.

My point is that this is not true. Some on the OSP get less than some on the new, but it is also true that some on OSP get a lot more than those on even the full rate of the NSP, an by no means everyone on the NSP gets the full amount.

There are also complaints about the fact (which I am not disputing) that many women were encouraged to pay lower rates of NI on marriage, and/or to take back their superannuation payments, which reduced their pension later on. My own recollections of the superannuation scheme are that it had nothing to do with marriage or babies (although they may have been the most usual reasons for women getting the money) but was offered to all (male or female) who had fewer than X years' service when they left. It was, when I claimed mine in approx 1978, optional, and it was always an option to pay the full NI rate, even though it may not have been easily afforded.

I understand people regretting those decisions, and I fully understand that few people in their 20s are looking ahead to retirement, but I don't understand why people would expect gifts from the government or their employer in the form of cheaper NI and a 'bonus' payment just for getting married. It doesn't make sense.

If decisions about superannuation were made without consent or explanation before 'my day', there is a case for setting up a pressure group to have occupational pensions topped up to what they would have been had the money stayed put. In my own case I was leaving the CS, and had only accrued about three years worth of payments made on a junior salary, so even after all this time it would be a few pounds a year, but for those on higher salaries it could be more.

Lower NI payments were definitely optional. I know some women who chose to make them and others who decided against. How would it be fair to the latter group to make up the pensions of the former to the same level? The lower payments continued after the scheme was scrapped, so a significant amount would have been saved by those making that choice. It would not be fair to ignore that, and increase their pension to the same level as colleagues who would also have had high mortgages and expenses, but chose to pay the higher rate. As I've said, the scheme was in place when I started work, but not when I married, and there was a lot of talk about it when it was about to be scrapped, so although I didn't make the choice myself I was part of several conversations about it.

Allira

Norah

Cabbie21

As the one who first mentioned the jam theory, it was not an excuse. It helped me understand the consequences of my decision making. I am not complaining.

I didn't think you were complaining.

Jam theory is a lesson in consequences. Dad told me if I stayed home, didn't earn, we'd have far less money, however I'd have time to accomplish tasks thus save money. Consequence: time is an asset.

If you worked for your DH at home and were paid a salary, that would have offset the tax he might have paid otherwise.

I didn't think you were complaining.
Nor me.
I think, however, that more information would have been useful, but as Doodledog said, there was no internet then and we were more inclined to believe employers.

I suspect most business owners pay the least tax legally possible. I also suspect there are many ways to save excess earnings, build assets. Salary for odd hours may not always be tax efficient.

Land is best for long term growth, imo, not everyone agrees.

Norah

Cabbie21

As the one who first mentioned the jam theory, it was not an excuse. It helped me understand the consequences of my decision making. I am not complaining.

I didn't think you were complaining.

Jam theory is a lesson in consequences. Dad told me if I stayed home, didn't earn, we'd have far less money, however I'd have time to accomplish tasks thus save money. Consequence: time is an asset.

If you worked for your DH at home and were paid a salary, that would have offset the tax he might have paid otherwise.

I didn't think you were complaining.
Nor me.
I think, however, that more information would have been useful, but as Doodledog said, there was no internet then and we were more inclined to believe employers.

I completely understand that, but to take the jam today then complain it’s not there tomorrow is disingenuous, surely?
Who is complaining if there was indeed a choice?
No-one that I can tell.

In the case of Civil Servants it wasn't a choice anyway, it was just returned in the final salary.

I’m paying tax on my OSP as it’s about £3 over the PA, fortunately I have four small company pensions from various jobs.

Regarding deferring pension, a friend of ours did this and sadly died before collecting. His widow wasn’t able to claim any benefit from it as she had always paid the full stamp and received the State Pension in her own right.

Cabbie21

As the one who first mentioned the jam theory, it was not an excuse. It helped me understand the consequences of my decision making. I am not complaining.

I didn't think you were complaining.

Jam theory is a lesson in consequences. Dad told me if I stayed home, didn't earn, we'd have far less money, however I'd have time to accomplish tasks thus save money. Consequence: time is an asset.

I know all of that, Allira, and have said so in my previous posts on this thread. I'm not saying the old days were better, just that complaining that people who paid for fewer years and at a lower rate than others is not valid. It is not the pension scheme itself that is to blame (although the changes to the SPA were not properly communicated) so energies would be better spent in getting compensation for the things that were to blame.

I think the fact that women retired earlier was at least in part because they were paid less - even if not, the lower pay means that the extra years of retirement women got was not 'unfair' as we often hear. Women were never on a level playing field with men in the first place.

I realise that it is all but impossible to prove what people were told about lower contributions and/or getting back superannuation money, as it was all so long ago, but again, getting publicity for that sort of thing is more likely to get public support than blaming the current scheme, or the implication that those on the NSP are always better off than those on the old - they are not, and that is easy to prove.

There has been a move to blame older people for the state of the country, and it is widely believed that we had easier lives than those of our children. In some ways that is true, but not in others, and a simplistic 'Boomers' versus 'Millennials/Gen X/whatever is lazy and ignores so many other injustices, such as social class, sex inequality, geographical location and so on. Fighting amongst ourselves doesn't help.

As the one who first mentioned the jam theory, it was not an excuse. It helped me understand the consequences of my decision making. I am not complaining.

Doodledog

I completely understand that, but to take the jam today then complain it’s not there tomorrow is disingenuous, surely?

I’m not saying it is right that people earn low wages - I am always in favour of increases to the NMW. Far better to pay more than to subsidise employers by forcing workers onto benefits. But this discussion is about pensions, not wages.

If people make the choice (however constrained the choice may be) to pay less in, they can’t complain when they get less out - that just doesn’t make sense.

If the problem is that wages are too low, that is what should get the complaints. Deflecting the complaints onto pensions and saying that people who have paid in different amounts should get the same returns is not going to convince those who paid in higher amounts in order to get better returns.

Yes, jam theory is making excuses. Can't have both, pay in less and receive less or pay in more and receive more in old age. Simples.

M0nica

Norah I think you prevaricate, from everything you say I think you were, and still are, an essential element, in your DH's business. Working mothers do not have to be officially signed up and paid to be just that.

Being in the progress of restoring an old house, I am very aware how many tradesmen rely on their wives to handle the paper work and be the first point of contact.

No, I always say that I accomplish receipts, books, bidding, and random supply pickups for my husband's business. I was asking, because I've never worked, have no knowledge of pension history, if men could be hard done by also because of the cut-off points and pension age changes.

I think it's easy to forget that pre-Internet people had very limited resources when it came to finding things out. You'd have to know what to look for, for a start, and there's no saying that you'd find it in your local library. These days we can type in 'financial preparation for retirement' or something, and all sorts of tips land in our laps. It was not always like that.

Yes, and we also believed what we were told by the Personnel Officer at the time, whether that was strictly true or not.

In any case, if I've got it right the 'baby bonus' thing was about occupational pension, not the SP
Yes, it was the occupational pension, usually a Civil Service r Local Government pension and, of course, saved them a lot of money in the long-term. There was a method behind their supposed generosity in offering workers their own money back.

The other thing was, although we were supposedly very fortunate and well off in those days, the 1960s and 1970s, the reality was not the same as perceived and that money was very useful indeed, particularly as women were more likely to take time out to become SAHM even for just a few years.

I think that is still possible under the new pension scheme, but at a much lower rate of interest.

That’s another thing that has changed with the new State Pension rules.

For those reaching State Pension age before 6 April 6 2016, deferring receipt of SP gave you two main options: a higher weekly pension (roughly 10.4% extra per year deferred) or a one-off lump sum plus interest (at least 2% above the Bank of England base rate) for deferrals over 12 months, with the lump sum being a popular choice. This is different from the new rules (post-April 2016) which offer about 5.8% per year (1% for every 9 weeks) as enhanced weekly payments only, not as a lump sum.

Paul Lewis from Moneybox has been looking at State Pension data using StatXplore. He writes:

At May 2025, 758,363 on old state pension and 64,603 on new had weekly state pension above £300. By contrast, 636,311 old and 173,164 new got only £100 or less. At May 2023, 9030 had a state pension more than £400 and 160 over £500. 2 years on there will be more.

Let me be clear, these are figures for just the state pension itself not pension credit, not counting any other benefits they may get. Just the contributory state pension. You can check them at StatXplore.

This contradicts the common complaints about old state pension. SERPs typically added another 25% to the basic pension, which is roughly equivalent to the difference in the old and new pension.

Note that when SERPS ended the rate at which Class 1 NIC was charged (which included the SERPS/S2P element) didn’t change. It remained at 12%, increased to 13.25% for a few months in 2022 then back to 12%, then 10% from January 2024 and 8% from April 2024 - which were simply Tory pre-election sweeteners.

For women who reached SP age after 5 April 2016, those born after 5 April 1953, the 2016 starting point calculations for SP usually result in a higher pension under the old rules. It is the higher number which is added to their post April 2016 NIC (when there was no SERP/S2P). The amount by which the result of the starting point calculated under the old SP rules exceeds the starting point under the new SP rules is called the Protected Payment.

(Doodledog - I felt your pain upthread when you exclaimed. “Not again.” when this came up.

Simplistically, You either have a SERPS/S2P pension aka additional state pension (aSP) to enhance the basic state pension (aSP can be as much as £211.10 pw) or an equivalent workplace pension if the scheme was contracted out.

I had a brief change of employment in the 1970s and back again. A lot of people were doing it to get around the wage freeze. It coincided with being a newlywed and hard up so I reclaimed my pension contributions. I wish I hadn’t. It has no impact on SP which is based only on complete contribution years at the full rate plus SERPS/S2P and post April 2016 years.

I agree, Cabbie. I think it's easy to forget that pre-Internet people had very limited resources when it came to finding things out. You'd have to know what to look for, for a start, and there's no saying that you'd find it in your local library. These days we can type in 'financial preparation for retirement' or something, and all sorts of tips land in our laps. It was not always like that.

I still feel that blaming these things on the pension system is the wrong approach though. If we want people to work and make financial contributions to society we have to make it worth their while to do so, and at times that just isn't the reality. We need to sort out the things that go wrong elsewhere, such as low wages, poor advice and so on, but keep the principle that you get back according to what you put in.

In any case, if I've got it right the 'baby bonus' thing was about occupational pension, not the SP, so it's being misused a bit on this thread, I think. People claiming money back probably contributes to the 'gender gap' when it comes to occupational pensions, but unless I'm mistaken it has no impact on the SP.

I withdrew my superannuation when I left teaching after two years, to move for my husband’s job. I then had about four years out and had two children. Some time after I was back at work, part-time, we had a financial adviser come to speak to staff. He explained how everything worked: NI, SP, teachers’ pensions, additional voluntary contributions etc.
For the first time, I/we understood how it all worked.

The most useful thing at that time was to inform us that we could re-instate those repaid superannuation contributions, ie two years’ worth for me, which I did, for not a lot of money.

The other thing I learned was that I could defer my state pension after the age of 60, which I did, for a year, which gives me additional pension. I think that is still possible under the new pension scheme, but at a much lower rate of interest.

Not enough information was available from official sources, to help women make the best decisions.

Chocolatelovinggran

I'm intrigued by the marriage and baby bonus that ,it is suggested, was given to teachers. I understand that it may have been given to civil servants, but I have never heard of either if these awarded to teachers. I started teaching in 1974.

From my post on the previous page:
I think marriage and/or baby bonuses had probably died out before I started work, but my first job was in the civil service and when I left I was offered my superannuation (basically my occupational pension contributions) back as a lump sum. That offer applied to everyone who left with fewer than X years' service, and would have been to save the treasury money, as they kept their contributions and saved on the index-linking of future payments if people took the money early. It didn't just apply to women, and was not linked to marriage or childbirth, although more women were likely to leave to live near their husband's place of work than the other way round. It may be different from the bonuses people are talking about, but it sounds very similar.

I suspect that the term ‘bonus’ was colloquial. There was no bonus involved, but an offer to get your own money back at a time when every penny counts. It applied whether you left to get married, give birth, move to another job or any other reason. I’m pretty sure it was offered to men, too, and in many case it was an option - people were not forced out of the pension scheme. I suppose if a woman planned to stay at home for years it might have made sense, as she wouldn’t accrue much of a pension anyway. I left at 19 (not to get married) and took the money, as it would have only made a tiny difference to my future pension and I wanted the money. I wouldn’t advise my younger self to do it now, but you can’t have your cake and eat it.

I'm intrigued by the marriage and baby bonus that ,it is suggested, was given to teachers. I understand that it may have been given to civil servants, but I have never heard of either if these awarded to teachers. I started teaching in 1974.

I completely understand that, but to take the jam today then complain it’s not there tomorrow is disingenuous, surely?

I’m not saying it is right that people earn low wages - I am always in favour of increases to the NMW. Far better to pay more than to subsidise employers by forcing workers onto benefits. But this discussion is about pensions, not wages.

If people make the choice (however constrained the choice may be) to pay less in, they can’t complain when they get less out - that just doesn’t make sense.

If the problem is that wages are too low, that is what should get the complaints. Deflecting the complaints onto pensions and saying that people who have paid in different amounts should get the same returns is not going to convince those who paid in higher amounts in order to get better returns.

Cabbie21

I remember now when I went back to work after a few years at home raising children, I asked an older woman whether I should pay full stamp or married women’s stamp on my small salary.
Her comment was “ It’s jam today, or jam tomorrow.” In other words, pay small stamp now and have more take-home pay now ( to put jam on my bread) or pay full stamp and get a higher pension later.

When your income is small and no chance of working full time,’ jam today’ is tempting- or essential, in my case. Pension age seems a long way away when you are 27, and nobody really explains the system to you anyway.

Yes, jam today was necessary if you were saving hard for a house deposit or had a mortgage.

Yes, I do know that someone will say that houses were cheap but in fact interest rates were high so mortgages were also relatively high in comparison to salaries.