WHICH STATE PENSION WILL I GET?
Blogs
The question “Which state pension will I get?” is perfectly understandable because state pensions are complicated and most people do not know the answer. Essentially there are two state pensions, the new State Pension and the old State Pension.
You’ll be eligible to claim the new State Pension if you’re:
- a man born on or after 6 April 1951
- a woman born on or after 6 April 1953
The earliest you can get the new State Pension is when you reach state pension age which is between 66-68 depending on when you were born.
If you attained State Pension age before 6 April 2016, these rules do not apply. Instead, you’ll get the basic state pension, in other words the old State Pension. The old State Pension includes two parts: A basic State Pension based on your previous National Insurance contributions. An Additional State Pension also based on your National Insurance contributions, but this takes into account your earnings and whether you claimed benefits too. The old state pension applies to people who reached state retirement age before 6 April 2016 or who deferred their old state pension from that date onwards.
Your National Insurance record before 6 April 2016 is used to calculate your ‘starting amount’. This is part of your new State Pension.
Your starting amount will be the higher of either:
- the amount you would get under the old State Pension rules (which includes basic State Pension and Additional State Pension)
- the amount you would get if the new State Pension had been in place at the start of your working life
Your starting amount will include a deduction if you were contracted out of the Additional State Pension. You may have been contracted out because you were in a certain type of workplace, personal or stakeholder pension.
YOUR NATIONAL INSURANCE RECORD AND YOUR STATE PENSION
Your new State Pension is based on your National Insurance record when you reach State Pension age.
You’ll usually need to have 10 qualifying years on your National Insurance record to get any new State Pension.
You may get less than the new full State Pension if you were contracted out before 6 April 2016.
You may get more than the new full State Pension if you would have had over a certain amount of Additional State Pension under the old rules.
You’ll need 35 qualifying years to get the new full State Pension if you do not have a National Insurance record before 6 April 2016.
Which state pension will I get? The answer is either the new state pension or the old state pension. You cannot receive both. If you started taking your state pension after 5 April 2016 you will receive the higher of the maximum old state pension or the amount you would have received under the new state pension. Whether or not you receive the full state pension is dependent on your personal circumstances and in particular the number of qualifying years for which you have received National Insurance credits.
QUALIFYING YEARS IF YOU’RE WORKING
When you’re working you pay National Insurance and get a qualifying year if:
- you’re employed and earning over £242 a week from one employer
- you’re self-employed and paying National Insurance contributions
You might not pay National Insurance contributions because you’re earning less than £242 a week. You may still get a qualifying year if you earn between £123 and £242 a week from one employer.
QUALIFYING YEARS IF YOU’RE NOT WORKING
You may get National Insurance credits if you cannot work – for example because of illness or disability, or if you’re a carer or you’re unemployed.
For example, you can get National Insurance credits if you:
- claim Child Benefit for a child under 12 (or under 16 before 2010)
- get Jobseeker’s Allowance or Employment and Support Allowance
- get Carer’s Allowance
YOU’RE NOT WORKING OR GETTING NATIONAL INSURANCE CREDITS
You might be able to pay voluntary National Insurance contributions if you’re not in one of these groups but want to increase your State Pension amount.
GAPS IN YOUR NATIONAL INSURANCE RECORD
You can have gaps in your National Insurance record and still get the full new State Pension.
You can get a State Pension forecast which will tell you how much State Pension you may get. You can then apply for a National Insurance statement from HM Revenue and Customs (HMRC) to check if your record has gaps.
If you have gaps in your National Insurance record that would prevent you from getting the full new State Pension, you may be able to:
So the answer to “Which state pension will I get?” is quite complex. It all depends on your own individual circumstances. A good starting point is to get a State Pension forecast from the DWP online. You know it makes sense.*
*Risk warning
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. The contents of this blog are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.
Tony Byrne
Chartered and Certified Financial Planner
Managing Director of Wealth and Tax Management
If you are looking for expert guidance in Financial Planning contact Wealth and Tax Management on 01908 523740 or email wealth@wealthandtax.co.uk
