The New UK State Pension, what’s it all about? …
The State Pension changed on 6 April 2016 for people who reach State Pension age from then onwards.
The old rules (which include basic State Pension and Additional State Pension) were complicated, making it difficult to know how much you’d get until you were close to State Pension age. Both the old and the New State Pensions are based on your UK National Insurance Contribution record.
Previously, in order to receive a full UK State Pension you needed 30 Qualifying years of National Insurance Contributions. The New State Pension makes it simpler to find out from a much younger age how much you’re likely to get, but the qualifying period is now 35 years. A ‘qualifying’ year includes National Insurance Contributions made from 6 April one year to 5 April the following year.
How much will I receive? …
This depends on your personal situation, the level of your UK State Pension income depends on your National Insurance record.
People with no National Insurance record before 6 April 2016 will need 35 qualifying years to get the full amount of new State Pension when they reach State Pension age. For those who had already built up some entitlement to the UK State Pension prior to 6 April 2016 it’s a little more complicated.
When you reach State Pension age, your new State Pension will take into account your National Insurance record both before and after 6 April 2016. The new rules make sure that the amount of State Pension you get for your contributions before 6 April 2016 is no less under the new State Pension than you would have got under the old rules, provided you meet the new minimum qualifying period.
For the new State Pension, you will normally need at least 10 ‘qualifying years’ (previously 5 years) on your National Insurance record to get any State Pension. These can be from before or after 6 April 2016, and they don’t have to be 10 years in a row.
The full amount of the new State Pension is £168.60 a week (2019 to 2020 rate).
What if I paid National Insurance before 5 April 2016?
If you have qualifying years on your National Insurance record as at 5 April 2016, you have a ‘starting amount’ for the new State Pension. This is the higher of either:
the amount you would have got under the previous State Pension system up to 6 April 2016, or
the amount you would get on your record to 6 April 2016 if the new State Pension had been in place at the start of your working life
Your ‘starting amount’ is reduced for any periods when you were contracted out of the Additional State Pension because when you were contracted out you paid reduced National Insurance. Therefore, your ‘starting amount’ could be less than, more than or equal to the full new State Pension. A large number of Company Pension Schemes were previously contracted out and the self-employed did not contribute to the Additional State Pension.
You may also have a Personal Pension plan which was used to Contract Out. These are examples of why your ‘starting amount’ may be reduced.
If your ‘starting amount’ is less than the full amount of the new State Pension:
Each ‘qualifying year’ you add to your National Insurance record after 5 April 2016 will add a certain amount (about £4.82 a week, this is £168.60 divided by 35 rounded up) to your ‘starting amount’, until you reach the full amount of the new State Pension or you reach State Pension age, whichever happens first.
If your ‘starting amount’ is more than the full amount of the new State Pension:
You will get this higher amount when you reach State Pension age. It is possible to have a starting amount higher than the full new State Pension if you have some Additional State Pension. The difference between the full new State Pension and your ‘starting amount’ is called your ‘protected payment’.
If your ‘starting amount’ is equal to the full new State Pension:
You will get the full new State Pension when you reach State Pension age.
Working out if this applies to you
You can get a State Pension forecast online (if you have registered for online access), or requesting it by telephone, or by completing a form and posting it from the Check your State Pension service. This provides personalised information, including your State Pension age, an estimate of how much State Pension you may get at that point and if you can increase this amount. It also allows you to view your National Insurance contribution history.
We can also assist with this process as part of our full financial review service.
I have a gap in my National Insurance record? What can I do?
It is possible to have some gaps in your National Insurance record and still get the full new State Pension. However, too many gaps can affect the amount of new State Pension you receive and you may wish to pay voluntary National Insurance contributions to fill these gaps. I intend covering how to make up any shortfalls in my next article, particularly for those living outside of the UK.
If you would like to know more contact email@example.com
Speed Financial Solutions are a highly qualified financial services provider looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your investment planning. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to your advantage. Our relationships are built on trust and mutual respect. We are ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings.
Our Principal, Andrea Speed, is a Qualified Pension Specialist and a Fellow of the Personal Finance Society (PFS) which is the professional body for the financial planning community. The PFS is part of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels.
Along with a Fellowship, Andrea is a CII Chartered Financial Planner specialising in Pensions, Investment, Taxation and Trusts.
Please take a look at our website – www.speedfinancialsolutions.com
For further information contact us on Tel 951 315 271 or 951 318 529
We are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation. Follow us on Facebook for regular updates.
The contents published are not recommendations or decision aids for your investment decisions and they do not constitute any type of advice. We are not tax advisers and independent tax advice should always be sought.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
28 August 2019