This year’s state pension reforms were supposed to make the system much simpler than its predecessor. The government has introduced a ‘single-tier’ state pension with a ‘full level’ that currently is £155.65 a week (£8,092 a year). The previous system, where you could pay full National insurance (NI) and get the additional state second pension (S2P, previously known as Serps), - or you decided to ‘contract out’ of doing this – has been scrapped.
And whereas previously you were entitled to a full pension after 30 years of NI contributions, it’s now 35. If you have less than 10 years of NI payments you do not get any State Pension.
If you reached state pension age before 6 April 2016, the changes don’t affect you. The basic state pension is £119.30 a week (£6,204 a year) in 2016/17. You may also have built up (Serps) or (S2P), but the exact amount will depend on your circumstances.
If you reach state pension age on or after 6 April 2016, the starting point for calculating what you get is the ‘full level’ of the new state pension: £155.65. But the name is confusing because you may get more or less than this. Government estimates show that only around half of those retiring over the next year will qualify for the full state pension.
Your National Insurance record before 6 April 2016 is used to calculate your ‘starting amount’. This is part of your new State Pension. Your starting amount will be the higher of either:
- the amount you would get under the old State Pension rules (which includes basic state pension and additional state pension).
- the amount you would get if the new State Pension had been in place at the start of your working life
Your starting amount will include a deduction if you were contracted out of the Additional State Pension. You may have been contracted out because you were in a certain type of workplace, personal or stakeholder pension.
You can get more State Pension by adding more qualifying years to your National Insurance record after 5 April 2016. You can do this until you reach the full new State Pension amount or reach State Pension age - whichever is first. Each qualifying year on your National Insurance record after 5 April 2016 will add about £4.45 a week to your new State Pension. The exact amount you get is calculated by dividing £155.65 by 35.
Example You had a starting amount from your National Insurance record before 6 April 2016 of £120 a week. You have another 5 qualifying years on your National Insurance record after 5 April 2016 (each year adding about £4.45 a week to your State Pension) equaling £22.25 a week. This adds up to about £142.25 a week for your State Pension.
However, if your starting amount is more than the full new State Pension, the part of your starting amount hich is above the full new State Pension is called your ‘protected payment’. Your protected payment is paid on top of the full new State Pension and increases each year in line with inflation. Any qualifying years you have after 5 April 2016 won’t add more to your State Pension.If you are concerned about how much state pension you could be entitled to, you should put yourself in the picture as soon as you can.
This involves checking your national insurance record and getting a state pension forecast from the government: visit https://www.gov.uk/government/publications/application-for-a-state-pension-statement to get started. You will need a Government Gateway account to use this online service, but you can register for one on the site. Or you can by complete an application form (BR19) and send it to the Future Pension Centre
The service should tell you how much pension you will be entitled to based on your current level of national insurance contributions, as well as how many extra years’ contributions you will need to make to qualify for the full weekly amount. Alternatively, you can call the Future Pension Centre on 0345 3000 168 (or 00 44 191 218 3600 from outside the UK).
The basic state pension is likely to be an important part of most people’s retirement planning, so knowing how much you are likely to get and what you can do to increase it, is best sought at an early age.