State Retirement Benefits

• Topic 01

  State Retirement Benefits

  63 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. A client defers their New State Pension for exactly 2 years beyond State Pension age. By approximately what percentage does their pension increase?

   • A
     Approximately 10.4% — reflecting the 1% per 9 weeks rate applied over 2 years at the old rate
   • B
     Approximately 5.8% — the rate applies once for the entire deferral period regardless of duration
   • C
     Approximately 11.6% — deferring for 2 years at approximately 5.8% per year
     Correct answer
   • D
     Approximately 20.8% — reflecting the old Basic State Pension deferral rate of 10.4% per year
   Explanation

   The NSP deferral rate is 1% per 9 weeks, which equates to approximately 5.8% per year. For 2 years of deferral, the pension increases by approximately 2 × 5.8% = 11.6%. This is notably lower than the 10.4% per year rate available under the old BSP rules. There is no lump sum option under the NSP.

2. A client reached State Pension age in 2024 with 42 qualifying years, but 12 of those years were built up before April 2016 while contracted out of SERPS. Their starting amount under the New State Pension transitional rules was calculated as £180 per week. The full New State Pension rate is £221.20. What will this client receive?

   • A
     £221.20 per week — the full New State Pension, because they have sufficient post-2016 qualifying years to reach the full rate
     Correct answer
   • B
     £221.20 per week plus a protected payment, because their starting amount exceeds the full rate
   • C
     The full New State Pension minus 12 years' worth of contracted-out deduction applied to the weekly payment
   • D
     £180 per week with a contracted-out deduction applied on top, reducing it further
   Explanation

   Under the transitional rules, a starting amount below the full NSP can be increased by adding qualifying years after 6 April 2016. Each post-2016 qualifying year adds 1/35th of the full NSP until the full rate is reached. Since this client has post-2016 years to add, they can reach the full rate. A protected payment only arises if the starting amount exceeded the full NSP — it does not apply here.

3. A person's State Pension forecast shows a 'protected payment' of £15 per week in addition to the full New State Pension. What does this mean?

   • A
     The protected payment is compensation awarded by the DWP for receiving an incorrect State Pension forecast in the past
   • B
     Their protected payment arises because they have fewer than 35 qualifying years and the protected payment substitutes for the shortfall
   • C
     Their pre-2016 pension accrual exceeded the full NSP equivalent, so the excess is paid as a protected payment on top of the full NSP rate, uprated annually by CPI
     Correct answer
   • D
     They have a protected payment because they worked beyond State Pension age and earned the additional amount
   Explanation

   A protected payment arises during the transitional NSP calculation when an individual's pre-2016 'starting amount' — calculated under the transitional rules — exceeds the full NSP rate. The excess cannot be taken away (it is 'protected') and is paid as a weekly addition on top of the full NSP, uprated by CPI each year. It reflects historical earnings-related S2P/SERPS entitlement built up before 2016 that was particularly generous.