State Pension - All You Need To Know

If you were born after the 5th of April 1951 (for men) or 1953 (for women), you will receive what is being called the “new state pension” as opposed to the old one.  Any contributions you made under the old scheme will be transferred to the new one and treated under its rules.  Here are five key points about it.

The “additional state pension” has been abolished Under the old system, your state pension entitlement was based on a combination of your national insurance contributions (basic state pension) and your earnings during your working life (additional state pension), unless you chose to opt out of paying the earnings-related contribution, for example, to put extra money towards a workplace pension scheme.  The new state pension is based purely on national insurance contributions and, going forward, only a person’s individual contributions will be counted, but during the introductory period, women who paid reduced national insurance contributions, sometimes known as the “married women’s stamp”, might be able to improve their own state pension by claiming on their partner’s contributions.

The name “flat rate pension” is a bit of a misnomer The full state pension will only be given to those with (at least) 35 years’ of qualifying contributions.  You need a minimum of ten years’ of qualifying contributions to receive any state pension at all and if you have at least ten years of qualifying contributions but few than 35 years’ worth of qualifying contributions, then the level of state pension you will receive will be in proportion to your level of contributions.

Any existing pension contributions will be respected Your existing pensions contributions will have been converted into a “starting amount”.  If this is exactly equal to what you require to claim the full new state pension then you will receive the full amount, but will be stopped from building up any further entitlement.  If you already have more than you would have received under the new system, for example, you have been paying into the additional state pension, then this will be respected, but again, you will be stopped from building up any further entitlement, if you have less, then you will receive less but you will have the opportunity to build up further entitlement, even if you already have 35 years’ of contributions.  For example, if you were “contracted out” of the additional pension for an extended period but now want to make up the difference to improve your entitlement, you will be able to do so.

Deferment is still possible, but is worth less Under the new system, each year you defer taking your state pension will earn you an increase in payments of 5.8%, which is almost half of the 10.4% offered by the old system.

It’s still often a good idea to make your own plans At current time the full new state pension is £159.55 per week.  This is, obviously, better than nothing and may be enough on which to live comfortably if you have paid off your mortgage and are based in one of the more affordable parts of the country.  At the same time, however, it’s unlikely to be the sort of income on which dream retirements are built.  It’s also worth remembering that during a lengthy retirement period, inflation may well raise the cost of living, but it is entirely up to the government whether or not the state pension is increased and, if so, to what extent.  For example, during the last election, the Conservatives conspicuously declined to renew their “triple-lock guarantee” (that pensions would raise by the highest of inflation, average earnings or 2.5%).  Because of this, it can be very advantageous to make your own plans to fund your retirement and to view the state pension as a handy top-up rather than a mainstay of them.