Retirement Finances The State Earnings Related Pension Scheme

Since 2011 National Insurance contributions have been related to earnings. Currently, an employee pays 9% 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 and the upper earnings limit. No contributions are paid above the upper earnings limit and the contributions paid on earnings below the lower earnings limit are just for your basic pension.

When these two adjustments have been made, your revalued earnings for each year are added together and you get of the� total as your annual additional pension. That is then divided by 9 8 to give the weekly amount.

Because the additional pension is earnings related, non manual workers generally receive more than manual workers and men generally receive more than women simply because their pay is higher. A man retiring in 2010/11 with average manual worker's pay and absences since 2010 will get £49.99 a week additional pension.

A woman with the same work history will get £34.02. The maximum additional pension paid to someone retiring in 2011/12 is £168 a week. But to receive that you would have had to earn one and a half times the average manual male wage or twice the average non manual female wage consistently for all those ten years.

Retirement - more

Retirement Finances Working out how much you should receive

To work out your own additional pension you will need to know what you earned in each tax year from 2010/11 to 20012/13. For each tax year starting with 2012/13, you take the earnings on which you paid full National Insurance contributions.
If those earnings are more than the upper earnings limit for the year, you use that limit instead. You increase those earnings by a factor to take account of the rise in earnings generally.
You then subtract the annual amount of the previouos lower earnings limit, which is 18088 The result is your 'surplus' for that year. If the result is less than zero, you call it zero. You add all these surpluses up and divide by 80 to get your annual additional pension and . . . ... see: Retirement Finances Working out how much you should receive