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Kirk Rice Blog

Getting To Grips With The New State PensionWritten on May 17, 2016 by Peter Sharratt

It used to be simple; men retired at 65, women at age 60. But with life expectancy rising, the government found itself paying state pensions to more people for longer and needed to find a way to lighten the financial burden facing the Exchequer.

So, the state retirement age has been raised and it will continue to rise in the years to come. By 2020, both men and women will be entitled to receive their state pension at age 66. This increases to 67 between 2026 and 2028; from then on, it will be reviewed every five years and linked to life expectancy rates. If you don’t know what your state retirement age is, you can find out by using the Gov.uk online calculator.

The New Flat-Rate State Pension

If you reach state pension age on or after 6 April 2016, you’ll receive the new flat-rate or ‘single tier’ state pension. The full amount is £155.65 per week.
Those who retired before 6 April 2016 and qualify for a full state pension will see it increase in April by 2.9% to £119.30 per week for a single person. If you have built up additional state pension, referred to as the State Earnings Related Pension Scheme (SERPS) or State Second Pension (S2P), you will receive more than the basic figure.

Not Everyone Qualifies For The Full Amount

Under the new scheme, in order to receive the full amount of £155.65 per week, you will need 35 ‘qualifying years’ of National Insurance contributions or National Insurance credits. Not everyone will get the full amount if they have missing years in their contribution record. Those who have built up additional state pension may get more, while those who were ‘contracted out’ of SERPS or S2P may get less. The amount you will receive is the greater of the amount you would get under the old system, or the amount you would have received if the new system had been in place for the whole of your working life. Getting an online forecast from Gov.UK will clarify your position.

Under the new system, those with less than ten qualifying years are unlikely to receive any state pension, although there are exceptions. As the new state pension is based on an individual’s own National Insurance contributions, in most cases there is no facility to claim a pension based on contributions made by a spouse.

To put these changes into perspective, a paper from the Department for Work and Pensions stated that, “By 2030, over three million men and over three million women will have benefited from a notionally higher state pension. This proportion, then begins to diminish over time, falling to around two-thirds by 2040 and just over half by 2050.”

What Your Next Step Should Be

These changes have prompted many people to take a closer look at their own pension situation. The state pension represents a basic safety net, so it’s important to get good advice to ensure that you are saving enough for the future.

Any reader interested in discussing this topic further can telephone Peter Sharratt on 01344 875000 or email peter.sharratt@kirkrice.co.uk.

If you would like to receive Money Matters & Taxing Times electronically, simply email info@kirkrice.co.uk stating Money Matters & Taxing Times in the subject heading and we will add you to our distribution list.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the funds at retirement, future interest rates and tax legislation.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.

 

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