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New State Pension now in force

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The biggest shake-up to the State Pension since it was created more than a century ago has come into effect.

The government has scrapped the two tier system and replaced it with a new flat rate worth £155 a week.

To qualify for the new State Pension, individuals will need at least 10 years of National Insurance Contributions. To receive the full amount, they will need 35 qualifying years.

Secretary of State for Work and Pensions, Stephen Crabb said: “This ambitious new reform will transform the State Pension for future generations. Millions stand to gain from the simpler system, including women and the self-employed, who so often lost out in the past.”

However, the Institute for Fiscal Studies said the simplicity of the new system had been “at best misunderstood and at worst overstated”.

“Our analysis suggests that only 17% of those reaching the state pension age over the next four years will receive a state pension worth exactly the single tier amount, while 23% will enjoy a higher income and 61% will receive a lower state pension income,” the IFS said.

People who receive more than £155 a week will be those who have accrued top-ups under the old State Pension system, which will be protected.

Those receiving below the full amount will most likely have ‘contracted out’ of the additional state pensions in the past – that is, they paid reduced rates of National Insurance contributions in exchange for reduced pension entitlement.

The IFS said “continued complexity is unavoidable in the short-run” and there is a considerable risk of “disillusionment” as people start claiming pension incomes this year.

For more see –  The new State Pension: key facts you need to know

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