New state pension aims to clear up how much we will be paid in old age

The full new state pension will be at a single-tier rate of £155.65 a week

Vicky Shaw
Monday 04 April 2016 00:16
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It is hoped that the new state pension will give savers a more solid base for their retirement planning
It is hoped that the new state pension will give savers a more solid base for their retirement planning

The new state pension launches this week in the hope that it will give savers a more solid base for their retirement planning.

It aims to sweep away complexities in the existing system and give people a clearer idea from a younger age of how much retirement income they are likely to get.

The state pension will change for men who were born on or after 6 April 1951 and women born on or after 6 April 1953.

The current system is made up of two parts: the basic state pension as well as the additional state pension which is extra money on top.

But the full new state pension will be at a single-tier rate of £155.65 a week. Usually people will need at least 10 years of qualifying National Insurance (NI) contributions to get any state pension.

It is part of efforts over recent years to head off fears of a looming old-age savings crisis as people are living for longer but not putting enough cash aside.

Wednesday also marks one year since the retirement freedoms were launched to give people who are aged 55 and over more control over their pension pots.

At the time this was heralded by the Chancellor, George Osborne, as the “biggest and most-exciting change” to pensions in more than a century.

However, research from financial-service group Sanlam UK, found that almost one in three don’t know what the changes are.

From 2012 onwards, people have gradually been placed into workplace pensions, which will help them boost their retirement funds on top of any cash they will get from the state pension. But while the new system is generally expected to be simpler to understand in the long run, concerns have been raised that at present people are confused about how it will affect them.

Around 70,000 people in their 50s and 60s will miss out entirely on the new state pension between now and 2030, charity Age UK has warned. Some 50,000 women and 20,000 men do not have the minimum number of qualifying years of NI contributions, according to the charity’s analysis. The existing regime allows people to receive at least some state pension even with only a few years of NI contributions.

The Work and Pensions Committee also found “neither the winners nor losers yet know who they are”.

In the early years of the new system, claimants with fewer than 10 years of qualifying contributions, people who derive rights to a pension based on their spouse’s contributions and those who built up large guaranteed minimum pensions between 1978 to 1988 face receiving less than they would under previous rules, the committee warned.

A report from the pension provider Aegon UK found that 67 per cent of the nearly 4,000 working-age people it surveyed did not know that the full rate for the new state pension will be £155.65 a week.

Q&A New rules on pensions

Q: Who qualifies for the new state pension?

A: For a man to qualify, he must have been born on or after April 6 1951. For a woman to qualify, she must have been born on or after April 6 1953. Usually, you will need at least 10 qualifying years of National Insurance (NI) contributions to get any state pension.

Q: What counts as a qualifying year of NI contributions?

A: This means that you were working and making NI contributions, getting NI credits, for example for unemployment, sickness or as a parent or carer, or paying voluntary NI contributions. You will need 35 qualifying years to get the full new state pension. If you have between 10 and 35 qualifying years, you will get a proportion of the new state pension. The full level of the new state pension will be set above the basic level of means-tested support. The 2016-17 rate for the full new state pension is £155.65.

Q: I do not think I will get much state pension. How could I increase what I will get?

A: One way is to keep working and paying NI contributions until you reach state pension age. You could also see if you can apply for NI credits to fill gaps in your NI record. Other potential options could be to pay voluntary NI contributions or to defer your state pension when you reach state pension age, to build up extra pension money when you do claim it.

For further details, visit gov.uk/deferring-state-pension

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