The State Pension never ceases to confuse people (including financial advisers!) so here’s a quick reminder of what’s happening.
From 6th April 2016, a new flat-rate pension will be introduced of at least £148.40 per week (increased from the current £113.40 per week) for people reaching State Pension Age (SPA) from this date i.e. women born on or after 6th April 1953 and men born on or after 6th April 1951. The actual amount will be set in autumn 2015 and will be available for those with at least 35 years’ National Insurance (NI) contributions or credits. You will need at least 10 years’ NI contributions to participate in the new scheme.
The current State Pension and benefits system will continue for those who are already pensioners or reach SPA before 6th April 2016. A new top-up scheme, starting in October 2015 and running for 18 months, will allow such people to pay a new class of voluntary National Insurance contribution (class 3A) allowing a maximum top-up of £25 per week.
When the single tier is introduced anyone who has a NI record will have a ‘starting amount’ of State Pension which will be the higher of the current scheme entitlement and the new arrangement as if it had been in place at the commencement of your working life. If your ‘starting amount’ is higher than the single tier this will be protected.
The new State Pension is an individual entitlement and in general you will not be able to claim on your spouse or civil partner’s contributions at retirement or if you are widowed or divorced.
The SPA is being increased from age 66 to 67 between April 2026 and April 2028 bringing the original age increase forward by 8 years. There is now legislative provision for 5 yearly reviews of the SPA within the Pensions Act 2014.
Finally, changes are intended to be cost neutral meaning that spending on State Pension will not increase – as ever there will be winners and losers compared to the current system.