Detailed Calculations
- The pension earned is calculated by taking the earnings between the lower earning limit and the upper earning limit in each tax year. This amount is referred to as ‘surplus earnings’.
- These ‘surplus earnings’ are then increased in line with national average earnings until the individual reaches state pension age.
- The earnings between 6 April 1978 and 5 April 1988 are then divided by 4 (to achieve the target of 25 per cent of earnings).
- The earnings between 6 April 1988 and 5 April 2002 are multiplied by a factor depending on the tax year state pension age is reached:
tax year in which state
pension age is reached
year ending 6 April percentage of total surplus earnings
2000 25.0 2001 24.5 2002 24.0 2003 23.5 2004 23.0 2005 22.5 2006 22.0 2007 21.5 2008 21.0 2009 21.5 2010 or later 20.0- The combined amount is divided by the number of complete tax years between April 1978 (or the first year in which the individual paid NI contributions if later) and the tax year the individual reaches state pension age.
Read more about this topic: State Earnings-Related Pension Scheme
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