State Pension Changes Arrive in April 2016Written By: Mark Cooper on March 28, 2016 No Comment
From 6th April some very significant changes to the UK State Pension commence and it is fair to say the communication of these changes and their implications and outcomes for future retirees could be a lot clearer than at present. Like most “simplification” projects at Government level it has become devilishly complicated, seeking not to disadvantage, yet to save the country money – yet another “Mission Impossible” to deal with.
First things first, if you reached your State Pension Age on or before 5th April 2016 these changes do not affect you, even if you chose to defer taking it at that time.
The current State Pension provides a Basic State Pension of £119.30 per week from age 65, provided that 30 years of National Insurance Contributions have been made. To this can be added an additional weekly amount, the State Earnings Related Pension (SERPS), latterly named State Secondary Pension (S2P), a top-up based on further NICs paid, over and above the minimum required for the above, depending on the level of earnings in each tax year. The highest total State Pension at age 65 I have seen is £232 per week, a feat unlikely to be beaten for many years to come.
To confuse things further, members of Final Salary Pension Schemes, in particular those with Public Sector Pensions were normally “Contracted Out” of SERPS so for the period of that employment they only accrued Basic State Pension. In addition many others “Contracted Out” via Personal Pension Plans between 1987 and 2010, but at least they accrued funds in their own “pot” to use for future retirement.
The new Flat Rate Single-Tier State Pension, being introduced from 6th April 2016 will provide a State Pension at age 65 of £155.65 per week provided that 35 years of NICs have been paid. The minimum years of NICs to receive anything is ten.
I refer to “age 65” above but as we know State Pension Age is rising on a graduated basis, already at age 66 for those born on or after 6th October 1954 and 67 for those born 6th March 1961 onwards. Further rises seem inevitable, albeit with a ten year lead-in time, meaning if you are within 10 years of the prevailing SPA it is unlikely to rise further.
On the face of it, that all looks somewhat clearer and simpler to understand, however there are complications, naturally.
How Much Will I Actually Get?
If you reach state pension age on or after 6 April 2016, your state pension figure will be calculated using the full level of new state pension of £155.65 as a starting point. This figure is likely to rise each year too, including those pensions in payment.
However, you might get more, or possibly less, than the full new state pension in practice. Those that have built up a sufficient additional state pension under the old scheme will likely get a higher amount. Those that were contracted out of SERPS before 6 April 2016 for a significant period of time could well get less.
The actual figure at age 65 (for now) will be whichever is higher – either the amount you would have got under the old system or the amount you would get had the new system been in place over the whole of your working life.
State Pension Forecast
If you are unware of the future State Pension you are likely to receive (and who wouldn’t be now) then I strongly suggest obtaining a State Pension Forecast by visiting the GOV.UK dedicated website here
You can request it by telephone (have your National Insurance number to hand) or by downloading the Form BR19, completing it and posting it off to their Newcastle Pension Centre.
In summary, the State Pension will arrive later in life than perhaps anticipated for most but nonetheless it provides a bedrock of guaranteed, inflation linked income that should not be overlooked when pondering when and how you can afford to retire. It is certainly worth investing a little time now to find out just how much it might be.