New State Pension

The new State Pension (nSP) started in April 2016, a year earlier than planned. The existing system will still apply to those who reached State Pension Age before that date.

Salary Related contracting-out ceased when nSP started.

The nSP is currently £175.20 per week.

35 years of NI contributions or credits will be required for the full nSP, an increase from 30 for the basic State Pension (BSP).

The minimum qualifying period has been set at 10 years NI contributions or credits will be required to qualify for any state pension. Between 10 & 35 years will get you pro rata benefits, e.g. 28/35 x £175.20 = £140.16.

No additional benefits will be accrued for more than 35 years of NI contributions or credits.

The nSP can be deferred but no lump sum will be available unlike the current BSP.

It is possible to pay voluntary NI contributions to buy more qualifying years.

Does nSP increase in payment?

Yes, for those claiming the pension in the UK the rate of nSP increases from April each year by at least the level of growth in average earnings. A triple guarantee applies so that the nSP increases each year by the highest of:

• growth in average earnings
• prices increases (the increase in CPI at the previous September) or
• 2.5 per cent.

For those who are not in the UK it depends on the country of residence whether there is an increase. GOV.UK: State Pension if you retire abroad.

Transitional provisions

Anyone with an existing history of NI contributions at April 2016 will be entitled to a starting pension equal to the higher of their entitlement under the new and existing rules.

A contracted-out deduction will be applied for periods of contracted-out employment. The DWP has issued a guidance document, The Single-Tier Transition and Contracting Out, which explains how the deduction is calculated.

If the starting amount is less that the nSP this can be increased by 1/35th for each year of NI contributions or credits after 5 April 2016.

If the starting amount is more than nSP no further benefits will be accrued but the extra benefits will be known as a protected payment. This will be protected but only by CPI not the triple lock.

The nSP will be based on personal NI contributions rather than the spouses or civil partners. Transitional provisions will recognise inherited benefits.

More information can be found in our article State pension transition.

Abolition of the savings credit

The savings credit element of the State Pension Credit will only be available to those who reached state pension age before 6 April 2016.

From 15 May 2019 when a couple are claiming married couples Pension Credit both of them have to be over State Pension age.  Any couple who were in receipt of pension credit before this date keep their entitlement.

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.