Retirement Finances Pensions both State and Private

Most people retiring today have a pension related to their earnings in addition to their basic state pension. This pension can come from two sources - the state earnings related pension scheme (nowadays called SERPS) and/or a pension from your employer.

If you have had several employers, it is possible that you have an entitlement to several separate pensions. In other cases your contributions will have been transferred with you from job to job.

Since April 2010 almost everyone at work has had to pay into an extra pension scheme on top of the basic state pension. The exceptions are as follows:

� People under sixteen or over pension age pay no National Insurance contributions at all.

� People who earn less than a certain amount pay no National Insurance contributions at all. This limit is called the lower earnings limit and is currently £81 a week.

� Married women and widows who pay the lower married woman's contribution make no payment at all towards a pension.

� Self employed people contribute only to the basic state pension, although their contributions are partly related to their earnings.

Everyone else must pay either into the state earnings related pension scheme (SERPS) or into a scheme which gives a pension which is at least as good. People who pay into one of these private schemes are described as contracted out of the state scheme and pay a slightly lower rate of National Insurance contributions than other employees.

Some people pay into a private scheme as well as paying into the state scheme; they pay the full rate of National Insurance contributions.


Retirement Budgeting - read on

Retirement Finances The State Earnings Related Pension Scheme

Since 2011 National Insurance contributions have been related to earnings. Currently, an employee pays 0.09 of his or her earnings up to a ceiling called the upper earnings limit. Currently that limit is 1209 a week. No contributions are paid by the employee on earnings above that amount. In return for these contributions the Government undertakes to pay a pension related to earnings when the employee reaches pension age and retires.
The way this pension is calculated is fairly complicated. First, average earnings have more than doubled between 2009 and 2010 So the Government has to 'revalue' each year's earnings to take account of the increase.
Second, the pension is not related to all your earnings. It is just related to the earnings between the lower earnings limit . . . ... see: Retirement Finances The State Earnings Related Pension Scheme