I received my pension statement today, so I now know how many qualifying years I have accrued. The info from DWP also included a booklet explaining some of the calculations and that the quotation I have is based on the old scheme and that I will not be able to get a proper calculation until the new state pension scheme starts next year (after 6-Apr-2016). As part of the new state pension scheme, DWP will be calculating a ‘starting amount’ and this will be used as the basis for the minimum value you will receive (it acts as a threshold for those that would have received more under the old scheme and are very near retirement).
In the meantime, I know I have 25 years and need to accumulate 35 years in total to qualify for a full state pension at 67. This gives me 20 years in which to accrue the 10 years required. These figures are all based on values up to 5-Apr-2015 so I will have this year’s qualifying contributions to add. This is where the booklet was useful as it states what the minimum earnings amount is to achieve a ‘qualifying year’. There are different amounts based on whether you are employed or self-employed.
Employed – in tax year 2015/2016 the minimum amount is £5,824.
I have just managed to scrape in this tax years ‘qualifying year’ based on the earnings I received before I quit the job. For the start of the new state pension calculations I will have 26 qualifying years and another 9 years to accrue. Seeing a single digit here is a relief, it seems like an achievable target. ** Although it also shows how close to retirement I am!
Based on the current calculations, I would receive a pension of £96 per week under the old rules and £100 under the new one. I am not sure if this is the true value as the confusion comes in when the SERPS/contracted out element is calculated. It is unclear in the booklet how this will be work just that a deduction will be made based on the number of contracted out years you have had. I am not sure how many contracted out years I have – I know I had some due to a company scheme – so I don’t know how much will be deducted from either of these values, it is not part of the statement.
This does not seem much to live off and would just about cover my basic bills (council tax & utility bills as they stand today), it would not leave anything left for food or other living expenses? If any of these bills increase above the average earnings growth used to calculate the new State Pension then it would be impossible to live. This just illustrates how important it is to have a money pot to dip into to enable you to live a comfortable retirement. Whether looking for an FI future or not, savings are important to have.