New State Pension Explained

As well as the reforms in defined contribution pensions, the state pension will be seeing some changes from April 2016. A new single-tier, flat rate State Pension will be introduced. The overview of changes is as follows:

  • introduces a single-tier, flat-rate State Pension, which will replace the basic and additional pensions for people reaching State Pension age from 6 April 2016 onwards
  • increases the State Pension age from 66 to 67 between April 2026 and April 2028
  • allows for 5-yearly reviews of the State Pension age.

Reason for the Reform

The Government is introducing these changes to create a simpler and fairer system. The current pension scheme is extremely complex with a lot of means testing which can result in inequality. This new system will be earlier to understand and people will have a clearer idea of exactly what will be provided. This will allow future pensioners to.

New State Pension Changes

1. Existing basic and additional pensions will be replaced by a single pension.

2. The amount provided will be set out at the end of 2015. This will be more than the standard pension credit guarantee (so it will be at least £148.40 per week).

3. The full single tier pension will be provided to those with at least 35 years of contribution or credits to National Insurance (NI).

4. To qualify for any State Pension, will need at least 10 years of NI contributions. Those between 10 and 34 years will receive a proportion of the full pension.

5. Entitlements will be individual, so there will be no particular rules for people who are married, in a civil partnership, bereaved or divorced.

6. Pension Credits and other means tested benefits will continue, but the savings credit element of Pension Credit will be abolished.

How the New State pension Affects Current Pensioners

The new single-tier State Pension will only affect those that reaching State Pension age from 6 April 2016 onwards. The current State pension will remain the same who are already pensioners or will reach State Pension age before 6 April 2016. It’s the date that you reach State Pension age that’s important, ot the date that you started to make contributions.

Current Contributions

While the new system is based on a single amount for everyone with at least 35 years of contributions, you may receive more or less than the basic rate if you have contributions of credits from before April 2016.

When the single-tier pension is introduced, anyone who has already built up a NI record will have a “starting amount”. This will be the highest amount of:

  • the amount your would have received under the current pension scheme.
  • the amount you would get if the new state pension had been in place from the start of your working life.

This system ensures that you don’t lose out if you have built up a large amount of contributions and that you get your full entitlement under the full scheme if not.

A deduction will be made from your starting amount if you have been in a ‘contracted out’ personal or workplace pension scheme – for example if you have been a member of a public sector pension. In this case normally you will have paid lower NI contributions because you were paying into a contracted out pension instead.

Get an Estimate

If you will reach State Pension age within the first five years of the new system, you can ask for an estimate of your State Pension from the Government.

You can call the Future Pension Centre on 0845 3000 168 or request a statement online on GOV.UK

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