The State Pension is changing on 6 April 2016. If you’ll reach State Pension age on or after that date you’ll get the new State Pension under the new rules.
The current State Pension system is complicated. This makes it hard to work out how much State Pension you’re likely to get and in turn difficult to plan ahead for your retirement. But there are some complicated changeover arrangements which you need to know about if you’ve already made contributions under the current system.
Below is a list a of frequently asked question I recieve which may be of asssistance, please scroll click the question and our website will take you to the answer.
- I’m already getting a State Pension
- Women born on or after 6 April 1953 and men born on or after 6 April 1951
- Key changes to the State Pension
- How will the new State Pension be calculated?
- If your starting amount is higher than the full new State Pension
- If your starting amount is lower than the full new State Pension
- Other new rules which may affect you
- Getting a State Pension statement
- New State Pension if you paid married women’s and widow’s reduced rate NI contributions
- Topping up your State Pension
You’ll continue to receive your State Pension under the current rules. But you can top up your State Pension by up to £25 a week by either paying additional National Insurance (NI) contributions or using the new State Pension Top Up Scheme.
Everyone in this group will get the new State Pension. If you’ve already started to build up State Pension under the current system, this will be converted into an amount under the new State Pension.
If you haven’t built up any State Pension by 6 April 2016, your State Pension will be completely calculated under the new rules.
The earnings-related part of the current system for people, who are employed, called the Additional State Pension, is being abolished with the new State Pension being based on your National Insurance (NI) record alone. To receive the maximum new State Pension, you require 35 years NI record. From April 2016 the new State Pension will be £155.65 per week.
However, if you have been ‘contracted out’ of the state scheme at any time in your working life the amount you receive under the new state pension may be reduced. Calculating this is complicated, but you can find out more at: www.gov.uk/new-state-pension/youve-been-in-a-workplace-personal-or-stakeholder-pension
Your NI record as at 6 April 2016 will be converted into a starting amount under the new State Pension. This won’t be lower than the amount you would have under the current system.
You will get the full new State Pension amount and you’ll also keep any amount above this as a protected payment which will increase by inflation, but you won’t be able to build up any more State Pension.
You can continue to build up your State Pension to the full new State Pension amount, up until you reach State Pension age.
You can do this even if you already have 35 years of NI contributions or credits but have a starting amount lower than the full new State Pension (this is more likely if you’ve been contracted out of Additional State Pension).
Working out how much you’ll receive is straightforward if you’re just starting work and haven’t built up any State Pension.
- To get the full amount, you’ll need to have 35 years worth of NI contributions or credits (known as qualifying years) during your working life. These don’t have to be consecutive years.
- If you have less than 35 years of NI contributions or credits, you’ll get an amount based on the number of years you have paid or been credited with NI. (for example; if you have say 25 years of NI contributions by the time you reach State Pension Age, you’ll get 25/35ths of the full State Pension amount).
- If you have less than 10 years, you won’t normally qualify for any State Pension.
- However, the 10 year minimum qualifying period does not apply to certain women who paid married women and widow’s reduced-rate National Insurance contributions. See below.
- If you have gained qualifying years in the European Economic Area, Switzerland (or certain bilateral countries which has a social security agreement with the UK), these can be used towards achieving the minimum qualifying period; however, the actual UK State Pension award will normally be based on just the UK qualifying years.
- If you’re contracted out of the Additional State Pension, your NI contributions will rise from April 2016. That’s because the Additional State Pension is ending and it will no longer be possible to contract out of it.
- You’ll still be able to defer taking your State Pension. For each year you defer, you’ll get just under a 5.8% increase in your State Pension (compared to 10.4% under the current system). However, you will no longer be able to take the deferred amount as a lump sum.
It’s a good idea to regularly request a State Pension statement so you can see how much State Pension you’ve built up so far and you can apply for one online at: https://www.gov.uk/check-state-pension
The new State Pension is normally based on your own NI contributions alone, but you may be able to have your State Pension worked out using different rules that could give you a higher rate if you chose to pay married women and widow’s reduced-rate NI contributions (sometimes called “the married woman’s stamp”).
If you have a shortfall in your basic State Pension, the main way of topping it up is by paying voluntary NI contributions to fill gaps in your record to improve your basic State Pension entitlement.
The cost depends on the year you want to pay for. The cost for the 2015/16 tax year is:
- £2.80 a week for Class 2 voluntary NICs if the gaps are for years you were self-employed
- £14.10 a week for Class 3 voluntary NICs for everybody else
If you’re unsure whether topping up your State Pension is worth doing, you can talk to the pension advisory service, who are usually very helpful. Go to: http://www.pensionsadvisoryservice.org.uk/
My thanks to the Money Advice Service in compiling this Blog
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.