'My online state pension forecast says I'll get just £132.78 a week - is the website faulty?' Our retirement Agony Uncle Steve Webb answers your questions
Former Pensions Minister Steve Webb is This Is Money's Agony Uncle. This week, he replies to a reader who checked how much state pension he is likely to get using the new online tool being trialled by the Government, and was dismayed to find the figure wasn't as high as he anticipated.
The big state pension overhaul last month has angered many people who expected to get the full new 'flat rate' of £155.65 a week but discovered they would end up with smaller payments.
This is because they contracted out of paying the additional state pension top-up and under-paid National Insurance during their working lives.
Mr Webb has explained and defended the new state pension in a previous This is Money column here.
Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below
I recently went onto the Government's beta test website for a state pension forecast. The result was an estimate of £132.78 a week from 30 September 2016.
My understanding is that my pension should be £155 per week. I can confirm that I did not 'opt out'.
I also enclose a screenshot from the Pension Service letter dated 8 April 2009 which confirms I have 35 years contributions (I have more now) and that I will receive the full pension. It is upon this document that I based my retirement plans.
I wonder if the beta test website is faulty, or if I used it incorrectly. Please explain.
Steve Webb replies: You have raised an important question about the estimates you can now get online about your state pension entitlement and how these compare to letters that you have received in the past from the Department for Work and Pensions.
When you received a letter from the Pension Service back in 2009, it was based on the pension system at the time.
There were two main components to your state pension. A basic state pension, which at the time was paid at a maximum rate of £95.25 per week and an additional earnings-related amount under the SERPS scheme.
To get a full basic state pension you needed at least 30 qualifying years of National Insurance contributions. In your case you had already exceeded that amount so you were going to get a full basic state pension.
GET YOUR STATE PENSION FORECAST NOW
In addition, your National Insurance Contributions also brought you entitlement to an amount under SERPS. Whilst any contributions you made since this letter was sent would not have added to your basic pension (which was already at the maximum level), they may have added to your SERPS pension.
When the new system was introduced in April 2016, the DWP will have compared your rights under the new rules (of which more below) with your rights under the old system of basic pension plus SERPS. Your starting amount in April 2016 is the higher of these two numbers.
This means that in your case the change to the new system cannot have taken anything away from you.
Under the new system, there is no division between basic pension and SERPS pension, there is simply one ‘new state pension’. This is indeed paid at a rate of £155.65 per week for those with 35 years of full rate National Insurance Contributions, but with a deduction for those who were ever contracted out.
I note that you say that you never ‘opted out’. If this is correct then it would seem that there is a mistake in your estimate and you would be entitled to the full £155.65. However, the figures suggest that the DWP thinks you were contracted out at some point.
BOOSTING YOUR STATE PENSION
Steve Webb wrote about buying top-ups and filling gaps in your National Insurance record here.
If you were ever a member of a public sector pension scheme or a private sector occupational pension scheme then it is very likely that you would have been ‘contracted out’. This isn’t something that you decide as an individual member of the scheme – the scheme itself is contracted out and so are all members of it.
This means that the employer and the employee pay a reduced rate of National Insurance Contributions, and in return for this the scheme promises to replace part of the state pension when you retire.
If you are sure that you were never a member of a contracted out pension scheme you might wish to contact the Pensions Service directly and they will be able to tell you in which years they believe you were contracted out.
If it turns out that there is indeed a mistake in your record, please let me know, as this may affect more people. But because the whole system of contracting out was not well understood or communicated, my best guess would be that at some point you were a member of such a scheme and this is why you are not getting the full state pension rate.
ASK STEVE WEBB A PENSION QUESTION
Former Pensions Minister Steve Webb is This Is Money's Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Since leaving the Department of Work and Pensions after last May's election, Steve has joined pension firm Royal London as director of policy.
If you would like to ask Steve a question about pensions, please email him at email@example.com
Steve will do his best to reply to your message in a forthcoming column, but he won't be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice.
Please include a daytime contact number with your message - this will be kept confidential and not used for marketing purposes.