The new State Pension: key facts you need to know
The current State Pension system of basic and additional pensions is considered to be too complicated and makes it difficult for people to figure out how much they’ll get when they retire.
In a bid to simplify the scheme, the government is introducing a new flat rate system from April 2016.
Will I get the new State Pension?
Anyone who retires on or after 6 April 2016 will get the new State Pension. So that’s men born on or after 6 April 1951 and women born on or after 6 April 1953. If you retire before then, we explain what happens below.
How much will I get?
The new flat rate State Pension has been set at £155.65 per week but not everyone will get the same amount. Some may get less. It all depends on your National Insurance (NI) contribution record.
To receive the maximum new State Pension, you need 35 years of NI contributions. This up from the current 30 years. You also normally need at least 10 qualifying years in order to receive part of this sum, though this doesn’t have to be 10 consecutive years.
People with less than 10 years of contributions will not receive any State Pension.
The current State Pension is made up of two parts: the basic State Pension and the Additional State Pension (sometimes called State Second Pension or SERPS).
If you are or were in a ‘Defined Benefit’ pension scheme (normally a final salary or salary-related pension scheme), or you were in any pension scheme at work before April 2012, you are likely to have been ‘contracted out’ of the Additional State Pension.
If you’ve been ‘contracted out’ (check your payslip and if the NI contributions line has a D, N, E, L or O next to it, you’re contracted out) of the state scheme at any time in your working life the amount you receive under the new State Pension may be reduced.
This is because those in a Defined Benefit scheme and later, Defined Contribution scheme, who contracted out paid lower National Insurance contributions in return for saving into a workplace or personal pension scheme instead.
If your starting amount is less than the full new State Pension, each qualifying year that you pay NI after 5 April 2016 will add a certain amount (around £4.45/week) to your starting amount, until you reach the full level or the State Pension age, whichever’s first.
If you’re aged 50+ and reach State Pension age after 6 April 2016, you can request a State Pension statement to see how much you’ve earned so far.
Under the reforms, contracting out will be abolished from April 2016 so employee and employer’s NI contributions will rise. The overhaul will merge the State Second Pension with the basic state pension.
Can I defer taking the income?
Pensioners will be able to defer claiming the State Pension income though it will be much less attractive than under the current scheme.
Your State Pension will increase by 1% for every 9 weeks you put off claiming which works out at just under 5.8% for every full year you put off claiming. After you claim, the extra amount you get because you deferred will usually increase each year in line with inflation.
What if I reach retirement before 6 April?
If you reach retirement age before 6 April 2016 (for women retirement is currently 62, for men it’s 65), you’ll come under the old or current system. Here you’ll receive £115.95 per week, that’s £6,029 per year though this is rising to £119.30 per week from April.
You may be able to top up this entitlement by an extra £25 a week. See our State Pension top-up scheme guide for the full information.
From December 2018, the State Pension age for both men and women will start to increase to reach 66 by October 2020. See the full State Pension Age timetable here.