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Please bear with me but I have to inform persons out there of the unfairness and loss of accrued State Pension under the "New State Pension (nSP). This scheme will be introduced on 6/4/2016 and will apply to all persons who reach State Pension Age on or after that date.
The Act that brought in the nSP scheme is The Pensions Act 2014, it completely changes the current pension system replacing that scheme with another thoroughly more complicated scheme. Please do not be taken in by the claims of the Government and Department heads that this will give everyone the same weekly amount of state pension (first quoted at £140 per week, now envisaged at £151.00). That will only happen in 2040, whereby anyone born on or after 6/4/2000 would have not paid into the current scheme and would have their pension calculated totally under the nSP scheme . All of the rest of us will have the most complicated methodology seen since1948 (when the state pension was introduced) applied to calculate the award of nSP, simple my friends it is not.
Apart from the ludicrous calculations contained in the Act, there is also provisions in relation to the sharing of the state pension via a pension sharing order issued as part of the financial settlement following a divorce. It is those legislative changes that I urgently need to convey.
The provisions will affect any person who will retire on or after 6/4/2016 and who has had a pension sharing order made and already implemented against their Additional Pension (SERPS and State Second Pension). By this I mean any person who consented, agreed or had a judgement made to the sharing of Additional Pension (AP) and has had a letter from DWP informing them that the pension sharing annex has been received and the order implemented and this will mean that a weekly deduction of whatever amount will be made to their AP when they reach State Pension age and claim their State Retirement Pension.
If this is you, or, you know of someone who this will affect please read on. I will try to make this less complicated than what is dictated in the Act.
Basically it has been officially announced that any order which falls into the category above will be honoured. The label given to this is "historic share orders". But put bluntly, if you were the party who incurred the deduction then the order will not be honoured at all. This is all documented in the 2014 Act and no committee or any other family law institutions have raised concerns over this.
To explain what will happen when you reach SPa and claim your State Pension I must first try to give a simplified explanation of how the nSP is calculated. Here goes, When you claim the awarding section will do a calculation to obtain what your entitlement would of been under the current (old system) using the assumption that you retired in the 2016/2017 tax year. They will use all the contributions and credits up to 5/4/2016 to assess the Basic Pension and Additional Pension (after any periods of contracted out employment have been taken into account). The 2 weekly pension components are then added together to give the weekly amount of state pension that you would of been entitled to had you reached retirement age in the period 6/4/2016 to 5/4/2017 under the current scheme. However this is not a true reflection of your entitlement under the current rules. The Pensions Act 2014 expressly prohibits the weekly additional pension deduction (as decreed by the court order and already implemented) to made to the total additional pension calculated at this stage.
Another calculation is performed to see how many tax years from 1978/1979 to 2015/2016 qualify for the nSP (I will not go into the methodology here).
The 2 amounts are then compared and whichever is the highest is deemed as what is known as the "starting amount".
If the starting amount is below the nSP rate (currently stated as £151 per week), then any qualifying tax years from the 2016/2017 one will be added until the £151 figure or lower is attained.
If the starting amount is above £151.00 then that amount is your nSP entitlement. The proportion above £151 is known as a protected payment. Any qualifying tax years from 2016/2017 will not be taken into account.
But the Pensions Act has legislated that the weekly debit ordered by the court and implemented and calculated in relation to the weekly additional pension accrued prior to the divorce, be deducted from the overall nSP award. By not applying the debit to the correct component a person will be prevented from accruing further nSP entitlement years i.e. by correctly reducing the additional pension at 6/4/2016 and therefore giving a correct result could mean the starting amount will be below the £151 and the qualifying tax years after 6/4/2016 could rightly be taken into account. There is also the fact that the debit is being applied to a pension that did not exist at the time of the court proceedings and cannot be legally binding as the legislation in the pensions Act is retrospective.
There are a thousand issues and concerns in respect of the provisions and the legality. They have been proposed, drafted and finally brought into law by persons totally ignorant of the pension sharing process and the different areas of law that govern it. Now one party of a settlement agreed in the past will be penalised and that goes totally against the Clean Break principle of which pension sharing is one of the solutions.
Sorry to harp on and for the very long post, which has took ages using a mobile. I just hope that this might help someone who falls into the trap above.
Ciao for Now
The Act that brought in the nSP scheme is The Pensions Act 2014, it completely changes the current pension system replacing that scheme with another thoroughly more complicated scheme. Please do not be taken in by the claims of the Government and Department heads that this will give everyone the same weekly amount of state pension (first quoted at £140 per week, now envisaged at £151.00). That will only happen in 2040, whereby anyone born on or after 6/4/2000 would have not paid into the current scheme and would have their pension calculated totally under the nSP scheme . All of the rest of us will have the most complicated methodology seen since1948 (when the state pension was introduced) applied to calculate the award of nSP, simple my friends it is not.
Apart from the ludicrous calculations contained in the Act, there is also provisions in relation to the sharing of the state pension via a pension sharing order issued as part of the financial settlement following a divorce. It is those legislative changes that I urgently need to convey.
The provisions will affect any person who will retire on or after 6/4/2016 and who has had a pension sharing order made and already implemented against their Additional Pension (SERPS and State Second Pension). By this I mean any person who consented, agreed or had a judgement made to the sharing of Additional Pension (AP) and has had a letter from DWP informing them that the pension sharing annex has been received and the order implemented and this will mean that a weekly deduction of whatever amount will be made to their AP when they reach State Pension age and claim their State Retirement Pension.
If this is you, or, you know of someone who this will affect please read on. I will try to make this less complicated than what is dictated in the Act.
Basically it has been officially announced that any order which falls into the category above will be honoured. The label given to this is "historic share orders". But put bluntly, if you were the party who incurred the deduction then the order will not be honoured at all. This is all documented in the 2014 Act and no committee or any other family law institutions have raised concerns over this.
To explain what will happen when you reach SPa and claim your State Pension I must first try to give a simplified explanation of how the nSP is calculated. Here goes, When you claim the awarding section will do a calculation to obtain what your entitlement would of been under the current (old system) using the assumption that you retired in the 2016/2017 tax year. They will use all the contributions and credits up to 5/4/2016 to assess the Basic Pension and Additional Pension (after any periods of contracted out employment have been taken into account). The 2 weekly pension components are then added together to give the weekly amount of state pension that you would of been entitled to had you reached retirement age in the period 6/4/2016 to 5/4/2017 under the current scheme. However this is not a true reflection of your entitlement under the current rules. The Pensions Act 2014 expressly prohibits the weekly additional pension deduction (as decreed by the court order and already implemented) to made to the total additional pension calculated at this stage.
Another calculation is performed to see how many tax years from 1978/1979 to 2015/2016 qualify for the nSP (I will not go into the methodology here).
The 2 amounts are then compared and whichever is the highest is deemed as what is known as the "starting amount".
If the starting amount is below the nSP rate (currently stated as £151 per week), then any qualifying tax years from the 2016/2017 one will be added until the £151 figure or lower is attained.
If the starting amount is above £151.00 then that amount is your nSP entitlement. The proportion above £151 is known as a protected payment. Any qualifying tax years from 2016/2017 will not be taken into account.
But the Pensions Act has legislated that the weekly debit ordered by the court and implemented and calculated in relation to the weekly additional pension accrued prior to the divorce, be deducted from the overall nSP award. By not applying the debit to the correct component a person will be prevented from accruing further nSP entitlement years i.e. by correctly reducing the additional pension at 6/4/2016 and therefore giving a correct result could mean the starting amount will be below the £151 and the qualifying tax years after 6/4/2016 could rightly be taken into account. There is also the fact that the debit is being applied to a pension that did not exist at the time of the court proceedings and cannot be legally binding as the legislation in the pensions Act is retrospective.
There are a thousand issues and concerns in respect of the provisions and the legality. They have been proposed, drafted and finally brought into law by persons totally ignorant of the pension sharing process and the different areas of law that govern it. Now one party of a settlement agreed in the past will be penalised and that goes totally against the Clean Break principle of which pension sharing is one of the solutions.
Sorry to harp on and for the very long post, which has took ages using a mobile. I just hope that this might help someone who falls into the trap above.
Ciao for Now
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