Financial Advice

The State Pension changed on 6 April 2016.

New State Pension

January 2017

If you reach State Pension age on or after that date, you’ll now receive your State Pension calculated under the new rules. As before, you can claim your State Pension and continue working, or put off claiming your State Pension until later. The aim of the new State Pension is to make it simpler to understand, but there are some complicated changeover arrangements which you need to know about and which have caused widespread confusion. Whilst the new flat-rate State Pension is seen by many as a straight replacement of the old basic State Pension i.e. an increase from £119.30 per week to the new rate of £155.65 per week, in reality this is far from being the case. According to figures from the government, only 37% of the 400,000 people due to retire in the 2016/17 tax year will receive the headline rate.

Key Changes

The new State Pension is a regular payment from the Government that you can claim if you reach State Pension age on or after 6 April 2016. The basic and additional State Pensions have been replaced by a flat-rate, single tier new State Pension with a full level of £155.65 per week, and depending on your personal circumstances this may be subject to tax. Your National Insurance record is used to calculate your new State Pension, and you’ll usually need ten qualifying years to get any new State Pension. To be a qualifying year, at least one or more of the following must have applied to you:

  • You were working and paid National Insurance contributions
  • You were receiving National Insurance credits, for example, due to unemployment, sickness or as a parent or carer
  • You were paying voluntary National Insurance contributions

Higher or Lower

The amount you receive can be higher or lower than the full rate of £155.65 per week depending on your National Insurance record, and it will only be higher if you have over a certain amount of Additional State Pension.

Contracted Out

The new system sees the end of the Additional State Pension (or State Second Pension [S2P]) and the State Earnings- Related Pension scheme (SERPS). If you have been contracted out due to membership of a contracted out occupational pension scheme, or if you contracted out of SERPS or S2P via a personal pension scheme, you will have either paid a lower rate of National Insurance or received rebates paid into your personal pension plan. Those who don’t have sufficient time before retirement, to build up 35 years of contracted in national insurance contributions, will receive less than the full flat rate.

Planning Ahead

As you might expect the calculation is complex and we recommend that everyone approaching retirement should apply for a state pension forecast, so they are aware of what they can expect. With this knowledge and the help of a good Independent Financial Adviser, plans can be put in place to ensure that income from all sources including state, company and personal pensions, investments and property income will meet your retirement needs.

Mark Barr - Chartered Financial Planner/STEP Affiliate - E-mail: 01473 408417