There is still a good deal of confusion about the State Pension (SP) changes that have been introduced so here we take a look again in broad terms at what has happened.
The new SP is a flat £155.65 per week for the 2016 / 2017 tax year for those with at least 35 years’ National Insurance contributions or credits with those having fewer than 10 years receiving nothing. For those who defer the SP, it will increase by 1% for every 9 weeks of deferral or 5.8% p.a. (previously 10.4% p.a. for the old SP).
The new system is based on everyone having their own pension entitlement whereas the old SP allowed some to receive a pension based on their spouse’s/partner’s record although a number of transitional arrangements apply.
For those who have already built up SP entitlement before 6th April 2016, a ‘starting amount’ is calculated. This is the higher of:-
1. the accrued entitlement under the new system (1/35 of £155.65 a week for each year of National Insurance contributions or credits, with a maximum of 35 years, minus a deduction for any periods contracted-out); and
2. the accrued entitlement under the old system (1/30 of £119.30 a week for each year of National Insurance contributions or credits, with a maximum of 30 years, plus any top-up entitlement minus a deduction for any periods contracted-out).
If the starting amount is lower than £155.65 a week, the individual can continue to build up SP until the maximum level is reached or they get to SP Age (whichever comes first).
If the starting amount is greater than £155.65 a week, the excess is treated as a ‘protected payment’, which is added to the normal maximum value of the new SP. However, while the new SP currently increases each year with the triple lock (the highest of price inflation, earnings inflation and 2.5%), the protected payment will increase only in line with prices (CPI).
Of course, the SP Age is also changing. It’s currently 65 men and between now and December 2018 it is rising for women from 63.5 to 65. After this, between December 2018 and October 2020, the retirement age for both men and women will rise to 66, and from April 2026 to 2028 start to increase to age 67. You can check the age at which you will become entitled to the SP at www.gov.uk/state-pension-age.