We’re just one month away from the launch of the new State Pension on Wednesday 6 April 2016.
The new State Pension can start to bring clarity to a system that few people truly understand. These blogs aim to help clarify what is happening and help you find out more about how the new system will affect you.
If you are aged 50 or over you can now get a personalised State Pension statement. You can call 0345 3000 168 or apply online. These statements give an estimate of the new State Pension you may get based on your existing National Insurance (NI) contribution record, to help you better plan for your retirement. I will tell you more about State Pension statements later in this blog.
Ahead of next month’s launch, here is a summary of the key points you may need to know about the new State Pension itself:
What is the new State Pension?
The new State Pension will be a regular payment from the Government that you can claim if you reach State Pension age on or after 6 April 2016. Check your State Pension age at www.gov.uk/state-pension-age.
So you will be part of the new State Pension system if you are:
- a man born on or after 6 April 1951
- a woman born on or after 6 April 1953
If you were born before these dates, you’ll get your State Pension under the old rules instead.
The new State Pension will still be based on any past NI record you’ve built up before April 2016.
To receive the full new State Pension in future you will need 35 qualifying years on your NI record. The new system will have just one flat-rate amount added to your future State Pension for each extra year on your NI record. There will be no more earnings-related part of the State Pension. For each year added to your future NI record you may add an extra £4.45 of weekly State Pension, up to the maximum full rate of £155.65 per week.
Although the full new State Pension amount for 2016/17 will be £155.65 per week, that doesn’t mean everyone will move to that rate. We cannot just sweep away the past and start from scratch. Everyone reaching State Pension age on or after 6 April 2016 will transition from the complicated old system to the simpler new one. For everybody who has NI qualifying years before 6 April 2016, we will work out a Starting Amount for the new scheme. To do this we will carry out two calculations based on your NI record up to 6 April 2016.
The first of these calculations will look at how much you would have got under the old rules. The second will work out how much you will get under the new State Pension rules.
Whichever is the higher of these two amounts, will be your Starting Amount for the new State Pension.
If in the past you have built up some additional State Pension your Starting Amount could be higher than the full amount of the new State Pension. If this is the case, don’t worry – you will not lose this extra money. The value of your Starting Amount which is above the full new State Pension will become your “Protected Payment”. When you reach State Pension age, you will receive your Protected Payment on top of your full new State Pension. For people whose Starting Amount is lower than the full amount of new State Pension, you can improve it by adding further qualifying years after 6 April 2016. Each year you add will give you about an extra £4.45 a week (1/35th of the full amount) until you reach the full amount or your State Pension age – whichever comes first.
What about if I have been contracted-out?
Before 6 April 2016, many people will have been contracted-out of the earnings- related additional State Pension at some time.
This is one of the most complicated parts of the current system, and I want to help people understand how this will affect their new State Pension.
When you were contracted-out, you and your employer will have paid lower NI to the State system. You can find out more about contracting-out in my earlier blog.
If you were contracted-out, your Starting Amount calculation will take this into account, and therefore your Starting Amount may be lower than someone with similar circumstances who has never been contracted-out. However, you will have been building a private pension instead that should replace the additional State Pension you would have otherwise got.
You may also be able to increase your State Pension amount by adding further NI years after 6 April 2016. This means that the majority of people who have been contracted-out of the State Pension under old rules will benefit under the new State Pension.
From 6 April 2016, the option to contract-out of the additional State Pension will come to an end.
To find out more, take a look at this short video which explains what contracting-out means and the changes coming into effect after 6 April 2016.
How much will I get?
If you are aged 50 or over, you can get a State Pension statement. This will give you an estimate of your new State Pension based on your past NI record.
Getting a personalised statement will help you understand how the changes to the State Pension may affect you.
To find out more, take a look at this short video and visit www.gov.uk/check-state-pension.
Did you know? You can also get information on your State Pension by using the new online Check your State Pension service. This is currently being tested by the Government and is available to everyone of working age who lives in the UK.
In order to use the online service you will need to confirm your identity using an identity verification service. To test this online service, visit www.tax.service.gov.uk/checkmystatepension.