MoneyMagpie

Feb 15

Get what you’re entitled to after state pension changes

The State Pension has changed beyond recognition in recent years. If you’re 55 or over, it’s important to get to grips with the changes, so you can take advantage of any benefits – and aren’t caught out by any nasty surprises.

 

The flat rate state pension

This was introduced in April 2016, and in principle means everyone who retires after that date is entitled to the same pension payment.

However, in order to qualify for the full payment, you will need 35 years of National Insurance contributions – or credits for the years when you had caring responsibilities. This is an increase from 30 years under the old system. If you have fewer than 35 years, you will receive less. If you have fewer than ten years, you will not be entitled to a State Pension at all.

There may also be a reduction if you were contracted out of the State Pension for any period. The government works on the basis that you were building up pension entitlements elsewhere as a result. It therefore reduces your State Pension accordingly.

If you are concerned that any of these exceptions may apply to you, it’s worth getting a State Pension forecast.

 

Transition arrangements for the new state pension

Before April 2016, the State Pension worked on a two-tier system. There was a basic state pension, received by almost everyone, and a second pension (S2P). The latter was based on the contributions you made into it. These, in turn, were based on your salary and number of years of contributions.

The dramatic change in the system risked penalising those with large S2P contributions. It means that the new system has transition arrangements built in. These calculate what you have built up under the old system, and what you have built up by April 2016 under the new system. It then uses the higher of the two figures as your ‘starting amount’. After April 2016, any further years that you pay National Insurance will be added to that starting amount, until you hit the flat rate State Pension.

If you built up more than the flat rate under the old system, that will be protected, and you will receive the higher amount. However, any further National Insurance contributions made from that time onwards will not add to your State Pension.

 

National Insurance contributions

You can apply to see your National Insurance record through Directgov. This will show how many years of National Insurance contributions you have made so far. If you need to ‘buy back’ some years to hit 35, you can do that. You can usually pay a lump sum to top up the past six years of National Insurance contributions. Your record will show how many years you are able to buy back, and how much it will cost you.

There is also a short-term top up called Class 3A contributions – expiring in April 2017. This enables you to top up your state pension by up to £25 a week by paying an additional lump sum. There is more information available on the Government website.

 

increase in the State Pension Age

Get what you're entitled to after state pension changesTraditionally men retired at 65 and women at 60, but in an age of gender equality and with an ageing population, the government decided that this wasn’t sustainable.

The State Pension age has been rising for women since 2010. The first rises were gradual, but the process was subsequently accelerated, so that it will now reach 65 in 2018.

At that point the State Pension age will rise for both men and women to reach 66 by 2020, and 67 by 2028. It will then rise in line with longevity. It is broadly expected that young people in work today will not receive a State Pension until they are in their 70s.

You can check your predicted State Pension age at Directgov’s State Pension age calculator.

 

Pension freedom

In the past, if you had a defined contribution pension, you would eventually have to use your pension pot to buy an annuity. Since April 2015, however, pensioners have had far more freedom.

They are able to access their pension pot at the age of 55. They can still buy an annuity, but they can also take whatever sums they like from the pension pot – whenever they like. They can use it to draw a regular income, or withdraw every penny on day one. They will be subject to tax at their marginal rate, but this is far less than the old charge of 55% on full withdrawals.

You can get more details from the Pensions Advisory Service, and guidance relating to your own circumstances from the government information service Pensions Wise.

 

Useful Links

  • For more information on anything to do with State Pensions or the changes which are taking place, visit Directgov
  • To find your local pension centre, click here
  • Take a look at the advice Moneymagpie offers on benefits for the over 60’s
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Comments

15 thoughts on Get what you’re entitled to after state pension changes

  1. I deferred my state pension in January 2010 . I dont want to take the lump sum because it is taxable. Can I claim my state pension now, even though I am still working? I have no savings as I returned to work just before I reached 60 due to personal circumstances. I have no private pension either. I thought I I pick up the state pension now, I can put it into a savings account and accrue some interest on it when I do retire. I am female. This will probably when I am 90 at this rate! Thanks any help appreciated.

    Reply
  2. Hi

    I receive a reduced pension as I worked a mix of full and part-time over the years and did not accumulate 30 years of National Insurance payments. At the time I was advised that I need not pay full National Insurance to get a full pension. It may have suited my employer.

    It has come to my notice that there are situations whereby a full pension may be paid in such circumstances above or where time has been taken off to look after children. Is this correct?

    Reply
  3. Once I have accumulated 30 years of national insurance payments am I still liable for payments if I continue in full time employment?

    Reply
      1. After my wife retired this year, I have been considering the options of joining her in retirement due to me suffering from cancer.
        Although I have not reached retirement age myself, I have read the article on the opt out of work for men under 60 for £202 a week pension credit. I have paid my national insurance contributions for 35 years.
        Would I still need to pay my national insurance contributions if I join my wife in retirement, and if so, how much will it be, and where do I send the payment.
        Kind Regards,
        Peter

        Reply
  4. Hi Jasmine,
    I am registered disabled and rceive the higher mobility DLA. I was told that although now 58 yrs old that I would receive my pension at 60 yrs of age- not 62 yrs and 8 mths due to the changes in pension age. Is this still the same? Many thanks. Mary

    Reply
  5. There are also proposed changes which I don’t think you have mentioned where women in a certain agegroup (around 56+) may have to work until they are 66 (see Direct.gov website). Totally unfair as we are unprepared for the speed in which these changes may well be implemented.

    Reply
    1. You don’t qualify. You have to be either married or gay and in a civil partnership. Even if you’ve lived together for years you don’t have a connection to their pension.

      Reply
  6. Will I be entitled to receive an increase in my pension as I am now 65 yrs old. I have been receiving the pension since I was 60 but I wonder if it will be going up.

    Reply
  7. You fail to point out that this Government as failed to honour the promise made by the government of the day that when they introduced the Graduated pension and the Serps they stated that they would increase at the same rate as the basic pension. This government are not paying any increase on this part of the pension for 2010/11. I think you should bring this point out in the open where ever youcan and as often as possible

    Reply
  8. I’ve had a few different jobs over the years since starting work after university; 3 longterm ‘permanent’, a couple ‘temporary’ through temping agencies. How do I find out if I’ve paid enough contributions over the years?

    Reply

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