04/12/16New State Pension: The key facts
The new State Pension (NSP) replaced the basic State Pension from 6th April 2016, but how does it work? How will it affect you?
Read on and we will explain.
- The NSP has also been referred to as the Flat Rate State Pension
- The NSP is currently £155.65 per week
- 35 years of NI contributions or credits will be required for the full NSP, an increase from 30 for the existing basic State Pension (BSP)
- The minimum qualifying period has been set at 10 years NI contributions or credits to qualify for any NSP. Between 10 & 35 years will get you pro rata benefits, calculated, for example as: 30/35 x £155.65 = £133.42
- No additional benefits will be accrued for more than 35 years of NI contributions or credits
- NSP can be deferred but no lump sum will be available unlike the current BSP
- Self-employed NI contributions will count towards the NSP. The Self-employed are big winners under the New State Pension rules
- It will be possible to pay voluntary NI contributions to buy more qualifying years
- Salary Related contracting-out will cease at the same time the NSP starts
- Anyone with an existing history of NI contributions at April 2016 will be entitled to a foundation pension equal to the higher of their entitlement under the new and existing rules
- However, a contracted-out deduction will be applied for periods of contracted-out employment. This is because lower NI contributions would have been paid during these periods. This is a complex area, which we are happy to review for clients on an individual basis
- If the foundation amount is less that the NSP this can be increased by 1/35th for each year of NI contributions or credits
- If the foundation amount is more than NSP no further benefits will be accrued but the extra benefits will be known as a protected payment. This will be protected but only by CPI not the triple lock
- NSP will be based on personal NI contributions rather than the spouses or civil partners. Transitional provisions will recognise inherited benefits.
Those people reaching their State Pension age after 6 April 2016 can broadly be split into four groups:
1. Individuals who have the necessary 35 qualifying years, who have not been contracted out and have only accrued a small amount of additional state pension – will have a foundation amount which is equal to the single-tier pension.
2. Younger individuals, with fewer qualifying years, or older people who have spent many years contracted out of the additional state pension – may have a foundation amount which is less than the full level of the single-tier pension. These people will be able to increase their single-tier pension up to the full level, at the rate of 1/35th of the full rate (£4.44 to the nearest penny) for each additional qualifying year.
3. Older individuals with many qualifying years, and who have not contracted out and have accrued a good additional state pension – Individuals with a foundation amount which is more than the full level of the single-tier pension. These peoples’ foundation amount will be higher than the full single-tier weekly amount. They will receive a top up known as the ‘protected payment’. The protected payment will be increased before state pension age and in payment by the rise in prices. They will not build up any further state pension from April 2016.
4. Individuals whose National Insurance record is all accrued after 6 April 2016 will have their whole pension calculated on the new single-tier system.
Abolition of the savings credit
The savings credit element of the State Pension Credit will only be available to those who reached state pension age before 6 April 2016.
,h3>Other existing rights are also protected
Married women who chose to pay lower National Insurance and rely on their husbands NI record instead will still be able to claim pension benefits on his record, even following a divorce.
It will also be possible to purchase NI credits to make up for a broken NI contribution record, and the timescales for doing so are to be extended. This can be achieved by making additional Class 3A NI Contributions.
Voluntary National Insurance contributions can help you to protect your National Insurance record if you are not building your National Insurance record through working or receiving credits. HMRC have extended the usual deadlines for making voluntary National Insurance contributions for the tax years from 2006-7 to 2015-16. You will have until 5 April 2023 to make the contributions.
Please let us know if you would like to discuss this.
Requesting a New Pension Statement
If you are aged 50 or over, you’re now able to request a pension statement under the new rules.
The pension statement will provide an estimate of how much you may get under the new State Pension based on your current National Insurance record. The statement offers an estimated amount, not a guaranteed amount, as it is based on your current national insurance record and doesn’t consider future national insurance contribution years you may build.
It is very easy to request this online via the gov.uk website, please click here to visit the site.
However, if you prefer, it is still possible to request this estimate using the form BR19 – please let us know if you would like our help with this.
The Government will gradually extend the State Pension statement service until everybody of working age will be able to request one.