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How is state pension calculated?

Is not the amount of state pension receivable based on the amount of contributions made during one's working life?

Some one told that only the number of years is taken into account... therefore is it just end equitable that someone paying twice as much as someone else should recieve the same pension??

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04th Jul 2011 16:15

There is an earnings related element if the pensioner has paid C

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By law man
04th Jul 2011 20:16

state pension

Tax payer must have credits for NI contributions for 30 years to have full pension. Given you receive credits for when you are unemployed or looking after children, this is not difficult.

You say "someone paying twice as much": in the sense that NI is payable at (say) 12.8% of earned income between bands; yes - Employee A earning £10,000 p.a. and Employee B earning £40,000 p.a. receive the same weekly pension [ignoring S2P which is to be phased out].

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05th Jul 2011 10:40

12.8% is not correct

That is the old rate of employer's contributions.

Employees pay 12% (was 11% for many years until 3 months ago) on band earnings.

 

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05th Jul 2011 10:55

There are, in effect, two pensions

There is the basic state pension, this is based on how many years you contribute with your level of earnings making no difference to this.

Then there is the second state pension (which is what SERPS evolved into) which, while still geared to low-earners, does take earnings into account.

A rough guide to this is that for every year you earn over the NI ET you get at least £1.60 a week onto your pension.

However this is all likely to be moot when the new £130 a week basic state pension comes in.

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By Vince54
08th Jul 2011 16:34

Level of Earnings

Although the level of earnings does not affect the amount of the basic pension, earnings have to be at least at the LEL on order for that year to count

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