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Will signing on boost my flat state pension?

Retirement | State Pension Helpful? 3

Asked by hdeakin299, submitted 22 May 2013.

Open Quote I am age 60.Is it worth "signing on" to get just "enhanced" State Pension credit only? (ie no actual current benefits just credit only: I realise that I would have to make myself available for work to do this)) .The reason for "signing on" would be to increase my overall State Pension entitlement? I will be claiming my State Pension in 2017 under the new rules . I have at least 38 qualifying years already "in the bag" so already qualify for the Basic Pension . So this question is about the "extras" under the new rules.End Quote

Answered by Justin on 13 August 2013

Based on my understanding of Government announcements so far, I think the answer depends on whether you were employed or self-employed. And, if employed, whether or not you contracted out of SERPS/S2P.

Assuming the flat state pension proposals go ahead in April 2016, your entitlement under the current system will be compared to a calculation under the new system to arrive at your 'foundation' amount.

The calculation is
(pre 2016 qualifying years x £144 / 35) less a 'rebate derived amount' if you contracted out of SERPS/S2P at any point. Note the pre-2016 qualifying years are effectively capped at 35 since you can't receive more than £144.

Your foundation amount will be the higher of these two figures. If your foundation amount is above £144 per week (well, whatever the £144 is up rated to by 2016) then the extra amount will be 'protected' - which means you'll receive it but the extra amount will only be up rated by the CPI measure of inflation in future.

If you've been contracted out for a long while your flat rate calculation is likely to be lower than your entitlement under the current system, regardless of how many qualifying years you have. Since your foundation amount would be below £144 you can add to this (subject to the £144 cap) by making qualifying NI contributions or being credited as such.

This gives potential scope to get up to one additional year of qualifying contributions between 2016 and when you reach state pension age in 2017, worth up to £4.11 per week in today's terms. It may be you can get this via signing on (i.e. claiming Jobseeker's Allowance (JSA), if given) - but I would double check with the Department of Work & Pensions nearer the time.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (1) - To post a comment please register or login .

Comment by hdeakin299 at 4:45pm on 18 Aug 2013:

Thanks for this answer which is certainly interesting .I asked the question because I wanted to see how credits would work in the new Flat Rate scheme and whether they would survive in their current form.

I suppose "Credits" , if I was to put them into a historical context, used to belong to that old "Beveridge style" welfare state which took a lot of its ideas from the Friendly Societies (apart from the fact that there was no actual separate NI fund unlike the Friendlies who definitely needed funds for the benefits they provided) In 1946 there was a clear separation of nominally "paid for" Contributory Benefit entitlements and the much tougher National Assistance benefits.Later , the politicians started to erode this distinction and we are now heading towards the Flat Rate scheme which appears to take this erosion even further than before.

So from this historical perspective "credits" appear to have started as a kind of patch that people got if they signed on and if they did so and met the conditions then they got a "credit" to boost their Contributory Benefits position.Later in the 1980s I believe that certain "signing on" easements applied, for a while,for the over 60s making it easier for them to get the necessary credits to "patch" their Contributions record for the year in question. I am however not up to date with the latest position on this particular "credit"aspect.

From the information given in the reply I don't think I myself will actually be signing on "just for credits" though I am interested in how the over 60s are now treated for getting these when they "sign on" and the form they will take in the new Flat Rate scheme.