Be aware of the new pension rules
A brand new state pension was introduced on 6 April 2016 as a result of a massive government shake-up of the UK pension system. The changes were designed to make the whole process easier to understand though it’s still far from simple.
The government introduced a single-tier state pension with a ‘full level’ of £155.65 a week (£8,092 a year). The previous system, where you could pay full National Insurance and get additional state pension – or you decided to ‘contract out’ of doing this – was scrapped. And whereas previously you were entitled to a full pension after 30 years of NI contributions, it’s now 35. To qualify at all, you need 10 years of NI payments.
|OLD STATE PENSION||NEW STATE PENSION|
|How it’s made up||2 parts: basic pension + additional pension||1 flat rate payment + any ‘protected payments’|
|Maximum weekly payout||£119.30 basic (+ Avg £40 additional)||£155.65 (£159.55 from April 6, 2017) + any ‘protected payments’|
|NI years needed for full rate||30||35|
|NI years to qualify for min payment||Any||10|
The average state pension payment under the previous system was £130 a week compared to the new £159.55 from April 6, 2017. The big question is will those who qualified after April 2016 be better off under the new system? Some will – and others will be worse off. For example, in the period 2016-2020, some 51% of men who get the state pension for the first time will be better off, but 28% will be worse off, whilst 21% will get about the same.
New state pension winners
People in these groups will generally be better off under the new system:
- women, carers and the low paid who haven’t built up an additional state pension
- self-employed people who didn’t qualify for state second pension
- people who were contracted out and can access their private pensions at age 55
- workers contracted out who have time to build up years of full NI contributions.
New state pension losers
These groups will generally be worse off, or no better off, under the new system:
- people with less than 10 years of NI qualifying years
- people with more than 35 years’ worth of full NI contributions
- high earners who won’t be able to build up more additional state pension (ASP)
- younger employees who will no longer be able to build up ASP
- spouses, civil partners, widows and widowers who will no longer be able to claim or inherit a state pension based on a partner’s NI contributions
- those already drawing the state pension won’t be affected
Whilst these changes have been welcomed by many it’s a source of constant frustration that the government keeps meddling with the pension system. While these new measures will likely remain in place for the foreseeable future there’s no way of knowing if they’ll be changed again. If I was a betting man I’d say the chance is highly likely.