The State Pension changed on 6 April 2016. If you reach State Pension age on or after that date you’ll get the new State Pension under the new rules. The new State Pension is designed to be simpler than the old system, but there are some complicated changeover arrangements which you need to know about if you’ve already made contributions under the old system.
- Who gets the new State Pension?
- New State Pension – key features
- How is the new State Pension calculated?
- What if you have fewer than 35 years of National Insurance contributions?
- Deferring the new State Pension
- New State Pension if you paid married women’s and widow’s reduced rate National Insurance contributions
- Help if your State Pension is lower than you need
- Getting a State Pension statement
Who gets the new State Pension?
Women born on or after 6 April 1953 and men born on or after 6 April 1951 will receive the new State Pension. In practice, it works as follows:
- If you had already started to build up State Pension under the old system, this will be converted into an amount under the new State Pension.
- If you hadn’t built up any State Pension by 6 April 2016, your State Pension will be calculated entirely under the new rules.
If you were born before the above dates and deferred taking your pension until 6 April 2016 or after, it’ll still be calculated under the old system.
If you were already getting your State Pension before 6 April 2016 nothing will have changed – you’ll continue to receive it under the old rules.
New State Pension – key features
The new State Pension is based on your National Insurance record alone.
For the tax year 2019-20 the full new State Pension is £168.60 per week.
To be eligible for the full amount you’ll need to have a 35-year National Insurance contribution record. However, if you’ve got 35 years of qualifying National Insurance contributions, you’ll still need to pay National Insurance until you reach your State Pension age.
You might get more than the full amount if you have built up entitlement to the Additional State Pension under the old system. This is sometimes called the State Second Pension or ‘SERPs’.
You might get less than the full amount if you were ‘contracted out’ of the Additional State Pension.
How is the new State Pension calculated?
Your National Insurance contribution record up to 6 April 2016 was converted into a ‘starting amount’ under the new State Pension.
This won’t be lower than the amount you would have received under the old system.
When your starting amount may be higher than the full new State Pension
Under the old system, if you were employed (rather than self-employed) you paid Class 1 National Insurance which entitled you to the Basic State Pension and an Additional State Pension.
The Additional State Pension was based on your earnings as well as the National Insurance contributions you had made or been credited with.
If you had built up substantial entitlement to Additional State Pension by April 2016, this might mean that you have already earned a pension under the old system that’s worth more than the full new State Pension of £168.60 a week.
If this applies to you, you will get the full new State Pension amount and will keep any amount above this as a ‘protected payment’, which will increase with inflation.
After April 2016, you won’t have been building up any more State Pension under the old rules.
If your starting amount is equal to the full new State Pension
You’ll get the full new State Pension amount.
You won’t be able to build up any more State Pension under the old rules, including via the Additional State Pension, after April 2016.
If your starting amount is lower than the full new State Pension
This might be because you were ‘contracted out’ of the Additional State Pension at some time before 6 April 2016. If you were then you and your employer would have paid National insurance at a lower rate than the full standard rate, and there may be a deduction from your new State Pension starting amount to reflect this. This can even be the case if you have 35 years of National Insurance contributions or credits – because some were lower, they won’t add up to give you the full new State Pension.
However, you can continue to build up your State Pension to the maximum (currently £168.60 per week) up until you reach State Pension age. You can do this even if you already have 35 years of National Insurance contributions or credits – see the later section on topping up your State Pension.
You can find out more about contracting-out here.
What if you have fewer than 35 years of National Insurance contributions?
- To get the full amount of new State Pension, you’ll need to have 35 years’ worth of National Insurance contributions or credits (known as qualifying years) during your working life. These don’t have to be consecutive years. You may be able to pay voluntary contributions to fill any gaps in your NI record – see below.
- If you have fewer than 35 years’ worth, you’ll get an amount based on the number of years you have paid or been credited with National Insurance contributions.
- If you have fewer than 10 years’ worth, 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 for more information.
- If you have gained qualifying years in the European Economic Area, Switzerland (or certain bilateral countries that have 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.
Deferring the new State Pension
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 old system).
You cannot take the deferred amount as a lump sum.
New State Pension if you paid married women’s and widow’s reduced rate National Insurance contributions
The new State Pension is normally based on your own National Insurance contributions alone.
However, you might 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 National Insurance contributions (sometimes called “the married woman’s stamp”).
Topping up your State Pension
If you have not yet reached State Pension Age but are worried that your National Insurance record might not qualify you for the State Pension (or for the maximum amount), you can make Class 3 National Insurance contributions.
These contributions are voluntary and allow people to fill gaps in their record to improve their basic State Pension entitlement.
If you’re unsure whether topping up your State Pension is worth doing, you can talk to the Pensions Advisory Service (TPAS) who have a free telephone helpline.
You can contact TPAS on 0300 123 1047.
Help if your State Pension is lower than you need
If you are not eligible for the full State Pension, you may be eligible for Pension Credit.
Pension Credit is an income-related benefit that tops up your weekly income to a guaranteed minimum amount if you have reached the Pension Credit qualifying age.
If you are in a couple, the amount you get depends on your joint income and capital (including savings and investments).
Getting a State Pension statement
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. This will also tell you whether you have any gaps in your National Insurance record and whether you were contracted out in the past.
You can apply for one online or by phone or post.
You’ll find details about how to do this at GOV.UK
This article is provided by the Money Advice Service.