How will the new state pension affect you?

The new state pension arrived in April 2016, introducing a new single-tier system to replace the old basic rate plus additional credits structure. However, not everyone will get the same flat rate – with some set to be worse off than under the old system.

6 April 2016 saw the start of this simplified state pension, where a single rate replaced the system where for some people, the basic rate was topped up with a second pension. This new, single-tier structure will also make providing pensions cheaper for the government over the long term, with people currently in their 20s and 30s to receive less than they would have under the old system. To counter this, many are being encouraged to save through company pensions – with every workplace legally having to have a scheme in place.

How much is the new state pension worth?

The new single-tier state pension is set at £155.65 per week. But anyone who reached state pension age before 6 April 2016 will receive the old basic-rate of £119.30 per week.

How do you qualify for it?

You can get the new State Pension if you’re eligible and:

  • a man born on or after 6 April 1951
  • a woman born on or after 6 April 1953

If you reached State Pension age before 6 April 2016, you’ll get the State Pension under the old rules instead.

To receive the full basic rate of £155.65 a week, you have to have made National Insurance Contributions (NICs) for 35 years.

Even if you have a full 35-year record of NICs, if you contracted part of them out to other pension schemes, you won’t get the full flat rate on top of these.

Deferring the new state pension

You do not have to claim the new State Pension as soon as you reach State Pension age. Deferring the new State Pension means you might get extra State Pension when you do claim it.

You will need to defer for at least 9 weeks – your State Pension will increase by 1% for every 9 weeks you put off claiming. This works out at just under 5.8% for every full year you put off claiming. For example:

  • You get less than the full State Pension, e.g. £120 per week
  • That means your State Pension will be £6,240 a year; and
  • By deferring for a year, you’ll get an extra £360 (just under 5.8% of £6,240).

However, the extra amount is paid with your State Pension every 4 weeks, and may be taxable. For example, income tax may become payable if your taxable income including your private pension and State Pension becomes more than your tax free allowance – being currently £11,000.00.

What else is different?

A major difference in the new system is the minimum of 10 years’ NICs now required to receive any state pension at all. People who took time out of their careers to care for children will also no longer be able to claim a state pension based on their partner’s NICs record.

If you would like any more information in relation to this article then please feel free to contact me via email: simon.nicolaides@bowlinglaw.co.uk or via LinkedIn

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