The State Pension – Rules And Changes Explained

State Pension in the UK

The state pension represents income that’s regularly paid to individuals who have attained the State Pension Age in the UK. It’s paid by the UK government and is part and parcel of its pension arrangements. It was formerly known as Retirement Pension. The state pension has the primary objective of ensuring individuals can support themselves after retirement and during old age. Anyone can claim the money when they reach the state pension age. The state pension is connected to the National Insurance contributions. The total amount that an eligible person for the state pension receives is dependent on the amount he/she has been contributing to the National Insurance. For each year that National Insurance is paid, it is regarded as a qualifying year for the state pension. For you to get the full amount of the State Pension you must have 35 years’ worth of National Insurance contributions.

The basic amount that you can receive from the state pension is determined by:

  • Multiplying the full rate by number of qualifying years
  • Dividing the number of years needed for the full rate

As from April 2016, there were new changes instituted by the government with regards to the way the state pension is claimed. As of now, there’s the basic state pension and the new state pension. Their working is based on when you reach the State Pension Age.

For those who reached the state pension age before the 6th of April 2016, you’re eligible for the basic state pension.

Photo Credit: autoenrolment.co.uk

Photo Credit: autoenrolment.co.uk

The maximum you can get is 119.30 Pounds in a week. Your National Insurance number will determine the day you’ll be paid. Typically, the last 2 digits of the National Insurance number will correspond to the day your state pension will be paid.

The following is a tabular representation:

Last 2 digits Day
00-19 Monday
20-39 Tuesday
40-59 Wednesday
60-79 Thursday
80-99 Friday

You’ll get your first state pension payment as soon as the end of the first week you reach the state pension age. The payment will be made continually after every four weeks to your account.

The total number of years required is 30 qualifying years. The qualifying years actually means that the cumulative period that you have been contributing to National Insurance.

For the new state pension, the people who are eligible to claim are:

  • Men born on/after April 6, 1951
  • Women born or/after April 6, 1953

You will need a minimum of 10 qualifying years of National Insurance contributions to get the state pension. These don’t have to be 10 consecutive years. With regards to National Insurance contributions, at one point in your life you must have:

  • Paid National Insurance Contributions while being formally employed
  • Received National Insurance credits (in the case of unemployment, illness or parenthood)
  • Paid Voluntary National Insurance Contributions

With the new State Pension it does not matter if you were working locally or abroad. This also applies to those living locally or abroad. Either way, you’ll be entitled to your State Pension.

In essence, those who had already started building up State Pension under the previous system and are women born on or after April 6, 1953, and men born or after April 6, 1951, their pensions would be converted into an amount under the new system.

If you hadn’t started building up any amount of State Pension under the new system, then you shouldn’t have a cause to worry since all the calculations will be completely under the new rules.

The notable changes to the state pension includes:

  • The Abolition of the Additional State Pension
  • The basing of State Pensions on National Insurance alone

The Additional State Pension was a provision which applied to employed people only. It was an extra amount that you could get on top the state pension. However, this was scrapped under the new system.

The new state pension will be based purely on National Insurance contributions.

The new state pension calculations will be based on your National Insurance record as at April 6, 2016. This will form your starting amount under the new system.

There are three things to anticipate here:

  • Your starting amount may be higher than the full new state pension
  • The starting amount may be lower than the full new state pension
  • The starting amount may be equal to the full new state pension.

If it turns out to be higher than the new state pension, it might be because of the additional state pension you were eligible to in the old system. Thus, you’ll get the new state pension and the additional amount which will be treated as “protected payment”.

If it turns out to be lower than the new state pension, it might be due to contracting out – you were probably contracted out in the Additional State Pension scheme.

If it turns out to be equal then you will get the full amount as it is.

In all the above, you won’t be eligible to build more state pension any more.

Deferment

It will still be possible to postpone taking of the state pension. In comparison with the old system, the increase will only be a 5.8% increase annually for every year you decide to defer as opposed to the previous 10.4% under the previous system.

Top-ups

The available schemes for top up of state pensions are as follows:

  • State Pension Top up scheme
  • Class 3 Voluntary National Insurance Contributions

They all depend on whether you have attained State Pension Age or not.

If you attained State Pension Age, there is a provision for you to increase your State Pension with the State Pension Top Up scheme. With this scheme you’ll be able to increase it between 1 Euro and 25 Euros weekly. For this to fully take place you have to:

  • Be a woman born before the date 6/4/1953
  • Be a man born before the date 6/4/1951

The class 3 National insurance contributions are for those who may want to fill spaces in their National Insurances record to improve their entitlement to the State Pension.

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