Question: “Hello, I am on the old state pension .I’d like to know why we are on a lower pension than the new pension. We are told pensions are going up by £400 + but is that just the new state pension?
“I worked all my life and paid National Insurance contributions over 35 years so it doesn’t seem fair there are two levels of state pension ! Would someone explain to me why.”
Jasmine Birtles aims to clear up the confusion in the weekly pensions and retirement Q&A. If you’d like to ask a question, please email [email protected].
Jasmine replies: This is a good question and one that I have asked myself a few times. So I have first asked a major expert on this question, Baroness Ros Altmann, a former Pensions Minister.
She explained that the situation is quite complicated. In practice it’s not the case that all of those on the old state pension get less than those on the new state pension. It really depends on your situation and what you paid into when you were working.
She said the short summary is as follows:
“The old basic state pension was only one part of the precious state pension system. For millions of people (but not the self employed and not so many women) the old system has four possible parts
“1. Basic state pension
“2. Graduated state pension
“3. SERPS (state earnings related pension)
“4. S2P (state second pension)
“Parts 2,3&4 were related to people’s earnings and were paid in addition to the basic state pension itself for those who were building them up through national insurance contributions.
“Each of the three additional parts are only linked to price inflation so they don’t have the triple lock and will go up by less than the old basic and the new state pension next year which will both rise 4.1 per cent in line with earnings.
Jasmine Birtles answers questions from GB News members in the exclusive pensions and retirement Q&AJASMINE BIRTLES | GETTY“It is just not necessarily true that all the pensioners in the new state pension will have more paid to them than those on the old system but there will be some better off and some worse off in each system.
“Self-employed and unpaid carers will do better on the new state pension but many older pensioners who worked for many years and had high earnings could get far more state pension than the new system gives.
“But you can’t make a general blanket conclusion because it is all so complex and because some people will be getting part of their SERPS layer of state pension from an employer or private pension because they paid a reduced rate of National Insurance in exchange for giving up their extra state pension because their private scheme was going to replace the SERPS instead.”
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- ‘My husband died before reaching state pension age. Can I inherit any of his pension?’
Phew, that is complicated! However, it helps to explain how what seems to be unfair isn’t meant to be and, in many cases, pays better than the system would have one expect.
Jasmine Birtles is a personal finance expert, TV and radio presenter and author of 38 books. Her website, MoneyMagpie.com, covers all aspects of personal finance from money-saving and money-making ideas to investment and pensions information. She is a keynote speaker at conferences around the world.