The new state pension system and how to maximise your entitlement

Thursday, 17 May 2018

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Independent pension and investment advice, Wetherby IFA

The State Pension changed on 6 April 2016. If you reached State Pension age on or after that date, you’ll get the new State Pension under the new rules.

You can check your state pension age here:

https://www.gov.uk/state-pension-age

The new State Pension is designed to be simpler than the old system, but there are some transitional arrangements which will affect you if you’ve already made contributions under the old system.

You can claim the new State Pension at State Pension age if you have at least ten years National Insurance contributions and are:

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

If you were born before these dates, you will receive the old State Pension instead.

HOW MUCH STATE PENSION WILL I GET?
The full amount you can get under the new State Pension will be £164.35 per week in 2018/19, unless your "foundation amount" is higher than this (see below) but this depends on your National Insurance (NI) record. If you have:

  • 35 years or more of NI contributions, you may get the full amount
  • Between ten and 34 years of contributions, you will receive a proportion of the pension
  • Less than ten years of NI contributions, you aren’t eligible for the new State Pension

HOW IS MY PENSION AMOUNT WORKED OUT?

If you have already built up NI contributions under the pre-2016 system, a calculation was done of your ‘foundation amount’ in April 2016. This will be whichever of the following is higher:

  1. Either the state pension entitlement you had built up under the pre-2016 system, including basic and additional pension
  2. Or the amount you would get if the new State Pension had been in place at the start of your working life

If your ‘foundation amount’ is more than the full amount of the new State Pension, any amount over that level will be protected and paid on top of the full amount when you start to claim the new State Pension. So if your foundation amount in 2016 was £200pw, then you will keep that entitlement, plus inflation each year, but you won't earn more state pension entitlement even if you continue to make national insurance contributions.

If your foundation amount is less than the full amount of the new State Pension, you may be able to build up a higher level of new State Pension through contributions and credits you make between 6 April 2016 and when you reach State Pension age. So if your foundation amount was £140pw then you can build this up to the maximum £164.35pw by continuing to make national insurance contributions.

WHAT HAPPENS IF I WAS IN A ‘CONTRACTED OUT’ SCHEME?

When working out the ‘foundation amount’ for your State Pension, a deduction will be made if you have been in a ‘contracted out’ personal or workplace pension scheme – for example, if you have been a member of a public sector pension. The deduction is made because in this case, normally you will have paid NI contributions at a lower rate because you were paying into a contracted out pension instead.

CAN I USE MY PARTNER’S CONTRIBUTIONS?

The State Pension is based on your own contributions, and in general you will not be able to claim on your spouse or registered civil partner’s contributions at retirement or if you are widowed or divorced. However, if you’re widowed, you may be able to inherit part of your partner’s additional State Pension already built up.

CAN I INCREASE MY STATE PENSION?

If you’re not on course to get a full State Pension, there may be some things you can do to help boost your pension. If you have missed any full years of national insurance contributions in the last 6 years then you can make a one-off payment to fill any gaps. Get advice from the State Pension Service on this, as you may not need to fill any gaps if you already have a full entitlement, or will do by the time you reach state pension age.

IF YOU DON’T CLAIM THE STATE PENSION STRAIGHT AWAY

You don’t have to claim your State Pension when you reach State Pension age. This is known as ‘deferring’, and could mean that you get extra State Pension when you do claim. How much extra you get will depend on how long you defer claiming it. In general though the deferral system is less generous than it used to be, and if you have retired then it probably isn't worth deferring your state pension.

IF YOU’RE A CARER

If you care for someone at least 20 hours per week you could get Carer’s Credit to help maintain your NI record.

IF YOU LIVE ABROAD OR USED TO

If you live abroad or used to, you may have a gap in your NI record which could affect the amount of State Pension you’ll get. You may be able to get a pension from
the country you live/lived in. Contact the department responsible for State Pensions in that country. If the country is in the European economic Area or Switzerland, then the DWP may be able to help you contact them. If you reach State Pension age after 6 April 2016, you might be able to use the time you worked abroad to make up some of the qualifying years that you need to get the new State Pension. This depends on the country you lived in though.

Chartered Financial Planners. Regulated by the Financial Conduct Authority (FCA no. 603653).