Public sector offered pensions NI pain now to get a better state pension later

20th March 2013

Members of the NHS or civil service pension schemes are being offered pain now by the Chancellor, but will benefit from a higher state pension later says financial adviser Derek Prentice, director at Kingston Smith Financial Advisers.

The introduction of the £144 per week flat rate state pension will now be in 2016 rather than 2017 but this will increase their national insurance bill. However while it may make it more difficult to make ends meet now, in pension terms it represents a good deal.
Prentice says: “Where an employee is contracted out, both employer and employee currently pay a lower rate of National Insurance Contributions (NICs), but at retirement, the employee will only be entitled to the Basic State Pension; not the additional State Second Pension. Under the new rules, the employer and employee will pay the full rate of NIC but the employee will receive a larger state pension in return.

This will affect anyone who is a member of the NHS or Civil Service pension schemes, for example, and will mean a bigger deduction from pay now to provide for a greater pension in retirement.”

 

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