From 6 April 2016 the state pension age will change to become a single amount for those of you who have not reached state pension age by that date. You may be under the impression that your state pension will be £150 a week, as this is what the new state pension amount will be. Sadly, you may be in for a shock! Changes to the state pension are supposed to be cost-neutral, so there are likely to be many overall losers.
The Department for Work and Pensions (DWP) has admitted that fewer than half of those retiring between 2016 and 2020 will get the full amount of state pension and that ‘contracted out’ workers (most public-sector workers) will receive no more than approx. £133 a week.
The current state pension system is split into two: the basic state pension and the state second pension. Public service workers currently only earn an entitlement to the basic pension, currently £115.95 per week (for someone with full 30-year National Insurance contributions).
If you’re a member of a public service pension scheme (such as the Local Government Pension Scheme: LGPS), you are currently contracted-out of the state second pension. You do not get a second state pension, but do pay less National Insurance (NI), as does your employer. From 6 April this will stop. You will no longer be contracted out and will pay a higher rate of NI.
If you are close to retirement you may well not get what you’re expecting. However, younger workers will accrue a bigger state pension than they would have done before, although they will pay larger NI contributions and have to wait longer to draw their pension.
How can you find out what state pension you will get?
If you will reach state pension age between April 2016 and August 2021 you can get a personalised estimate of your pension entitlement, together with information on how you might enhance this. Go to www.gov.uk/state-pension-statement for further info. This service will eventually be extended to all working-age people.
Checking your state pension age
This depends on your date of birth. State pension age is currently 65 for men and approx. 62.5 for women. This will equalise in November 2018. From then, the state pension age will increase to 66 by October 2020 and 68 by 2046. You can check your own state pension age at www.gov.uk/calculate-state-pension .
Buying extra pension
If you reach state pension age before 6 April 2016, you will be offered the opportunity to boost your state pension by up to £25 a week. This will be done by paying Class 3A voluntary NI contributions up to £25 a week. The window for this top-up scheme closes on 5 April 2017. How much you will pay depends on your age and how much extra pension you want to purchase. Find out how much you would need to pay at www.gov.uk/state-pension-topup .
- You will only (with limited exceptions) be able to claim a new state pension on your own NI record. If you don’t pay NI contributions yourself, you may well not qualify for a new state pension.
- Certain NI credits will protect your position when you’ve been unable to pay NI. You can check these at gov.uk/natonal-insurance-credits/overview .
- The new state pension will increase each year at least in line with earnings. UNISON is pressing for the ‘triple-lock’ to be adopted. This is for increases to be linked to the higher of: earnings, inflation or 2.5% per year.
- From 6 April 2016, the rate of state pension deferral will reduce from 10.4% a year to 5.8%. This will only apply to those retiring from this date.