Basic State Pension

Question1

Basic state pension

1. 1. In 2002, qualifying years pay National Insurance Contributions in a taxable year. National Insurance Contributions is replaced by Credit, if it is full of a taxable year which can be calculated a qualifying years.

From 6th April 2010, whether male or female only meet 30 qualifying years and they can take full amount basic state pensions.

2. Class 1 National Insurance Contributions is paid by employed, if the weekly earnings between ￡153 and ￡805, the employee should pay 12% earnings. Over ￡805 weekly earnings should pay 2%.

Class 2 National Insurance Contributions is paid by self-employed who pay ￡2.75 a week.

Class 3 National Insurance Contributions is voluntary National Insurance Contributions, which to cover or avoid gaps in the National Insurance record. If you are ill, not working, and unemployed, they can not get any benefit. If you live abroad and they don not need to pay National Insurance. For self-employed making a profit under ￡5885 and National Insurance is not paid.

Last is Class 4 National Insurance Contributions is paid by self-employed. If the annual profit between ￡7956 and 41865, which should pay 9% , if over ￡41865 annual profits and it will pay 2%.

3. Before 2010, it called Home Responsibilities Protection and now it correct the National Insurance Credit. It concludes three points: firstly, a person spends at least 20 hours to care others and they can enjoy attendance allowance. Secondly is caring under 12 years’ juveniles. Last is a person look after long-term disable and not working.

4. Full time training is the company sends a person to join further learning, research and studies, and abroad training, the relevant time can calculate qualifying years.

1. Kris can get full amount Basic State Pension. Because she is 25 years working times add to 7 years care for her children, the total is 32 years. By qualifying years rules, the qualifying years can be accumulated and only meet three situations. In this case, Kris is working and paying National Insurance Contributions in 25 years, and she cares for her children 7 years. Overall, she has over 30 qualifying years and can enjoy full amount Basic State Pensions.

Question 2

国家第二养老金

1. 1. Before April 5th 2002, it called State Earnings Related Pension Scheme, after is called State Second Pension, and now is also called Additional State Pension.

2. There are three conditions that are not enjoyable the pension. Firstly, if you are an employee and the income is less Lower Earning Level or less than ￡5772. Secondly, you are a self-employed and next is unemployment. Last is taking part in full time trainers.

3. It depends on how many years of paying National Insurance Contributions, and earnings before retirement, and whether contract out the scheme.

4. Due to it needs to be paid by country, the country’s finance without restriction and rule the Band Earning. Band Earning is the earnings between the lower earning limits and the upper earning limit. Lower Earning Limit’s people who are not enjoying State Second Pension, if over Upper Earning Limit, due to it is too high to the salary and over the ability of the country, so the country at most as Upper Earnings Limit to calculate.

After April 5th 2000, Max Target Benefits= 1%*20 years*Revalued Band Earning

1% is fixed index, and the fixed index is 1.25% before the 2000, after 2000 is 1%. 20 years is working years, if it is lower 20 years and the working years calculate by actual years, and over 20 years as 20 years calculate. Revalued Band Earnings is calculated by actual when lower Upper Earnings Limit, if over and it is calculated by Upper Earnings Limit. After the retirement, the State Second Pension at most take 20% of salary when you are young.

5. Contract out: is totally 9 points.

The employee normally pays National Insurance Contributions as 12% of salary. They can enjoy Basic State Pension and Additional State Pension.

Between 1980 and 1990, the government is to carry out Occupational Pension and Personal Pension, and it employs carry out. Meanwhile, the government calls that the OPP and PPS can get more pensions than BSP, so it is encouraged to contract out the APS.

If the employee take part in OPP and PPS, they will pay NICs is 8% of salary. Only if contract out, the employee pay NICs by a lower rate. But they only enjoy BSP and are not enjoy ASP after retirement.

Actually, because the OPP and PPS are mostly related with investment performance, and BSP may get more pensions than them.

Because of the profit of OPP is unstable, the government ruled in 2012/13, the people must have Defined Benefits and they can contract out BSP.

The employer must provide contract out pension scheme, the employee can contract out BSP. If the employee’s earnings is over LEL as ￡5772, they can contract out.

1. If Ken contract out, he will not take APS after the retirement. If he want to contract out, due to he has not Defined Benefits in OPP, so he can not contract out, he needs to pay OPP and have DB, so he can get APS after the retirement.

3. Occupational Pension Scheme

a. 1. Defined Contribution is also called Money purchase Occupational Pension Plan.

  2. Employer’s payment amount is defined at first, the employer represents every employee’s responsibility of payment aspect is limited. They are responsible for fixed payment amount. 

 3. DC consists of employee’s payment, employer’s fixed payment and investment return.

 4. For DC, the final payment of pension amount has not safeguard from the start.

 5. It is suit for short-serving employee, the account payment fluctuate with investment performances. Some Defined Contribution OPP will transfer automatically into low risk investment products when close to retire. If it does not transfer automatically, you need to ask by yourself. If you are not asking, it will regard as giving up automatically.

 6. The employee undertake financial risk, the final benefits is not related with employer.

b. Defined Contribution depends on several points. Firstly, investment performance and no minimum guarantee, which is equal to purchase the investment financial products and it may have no benefits. Secondly, the age of annuity, the older age and the higher annuity takes. Thirdly is annuity rate has differences by different products. Lastly, is the ancillary benefits, such as spouses’ pension and annual increase paid.