Truth & the
Frozen Pension regime
About the complicated UK pension system
British social security benefits are paid from two sources, the National Insurance Fund (NIF) and Taxation Revenue.
The pension is payable only from the NIF. No part of it is paid from Taxation Revenue.
The pension must be seen as different from the other NIF benefits. The pension is paid only to people who have retired. Other benefits, such as unemployment and sickness etc, are paid only to people who have not yet retired.
The pension is a contributory benefit; it is based on contribution history.
It is easy to distinguish between that part of the NIF contribution which purchases a basic pension and the rest which purchases other benefits. This is most clearly seen when considering class 3 voluntary contributions. In the case of people who live and work and contribute all their lives in the UK, this distinction is not easily seen. But take the case of Mr N, who emigrated when he was 27. When he enquired about a pension at age 62 he was told that he had 12 qualifying years, enough to give him a pension 28% of the basic pension rate, He was told that he could pay for 6 back years to make up for missed years, plus two more before retirement age. Thus he was able to pay 8 more years and get a pension of 46% of the basic rate.
These class 3 contributions did not qualify him for any benefit from the NIF other than the basic pension. They were described as being only for the acquisition of extra basic pension.
Mrs N was told that as she had only 9 qualifying years, she was not entitled to a pension. She was not told about class 3 contributions, but when, several years later, she followed up this matter she was permitted to pay for 3 years class 3. As a result she acquired a pension 31% of the basic rate. In addition she has a category B pension based on her husband's basic pension.
Both these pensioners contributed before emigrating. Both were allowed to pay the flat rate class 3, and both acquired extra pension as a result.
The pension is paid from the NIF and from nowhere else, and is strictly based on contributions.
The graduated retirement benefit and S2P are also related to contributions, but not just the number of contributions. They are related to the amount of contributions, based on earnings. As expatriates cannot pay for these benefits it is not so easy to see the clear distinction. But it is still true that the pension is paid from the NIF and from nowhere else, and is strictly based on contributions.
People approaching pension age on both sides of the St Lawrence River may be permitted to pay class 3 contributions. The amounts will be identical in £s. The proportion of pension gained for each year of class 3 will be identical, apart from the rounding off. But the one on the North is purchasing additional frozen pension while the one on the South is purchasing an indexed pension - BUT THE COST IS THE SAME.