New State Pension

The new State Pension started in April 2016, a year earlier than originally planned. However, individuals who reached state pension age before April 2016 still receive the Basic State Pension.

The new State Pension is currently £185.15 per week.

Salary related contracting-out ceased when the new the State Pension started.

An individual needs 35 years of National Insurance contributions or credits before they can receive the full new State Pension. This is an increase from 30 years for the Basic State Pension.

The minimum qualifying period is 10 years of National Insurance contributions or credits. An individual with between 10 and 35 years will get a proportion of the benefit, for example somebody with 28 years’ worth of National Insurance contributions or credits will get 28/35 x £185.15 = £148.12. It is possible to pay voluntary National Insurance contributions to buy more qualifying years.

Once an individual has 35 years of National Insurance contributions or credits no additional benefits will be accrued but they will still have to pay National Insurance contributions on their earnings until they reach state pension age.

The new State Pension can be deferred but no lump sum will be available unlike the Basic State Pension.

Does the new State Pension increase in payment?

Yes, for individuals claiming the pension in the UK the rate of new State Pension increases from April each year by at least the level of growth in average earnings. A triple guarantee usually applies so that the new State Pension 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.

However, for the 2022/23 tax year, the government has set aside the earnings element of the 'triple lock'. This means the new State Pension increased by the higher of 2.5% or CPI. As CPI for September 2021 was 3.1%, the new State Pension increased by 3.1% in April 2022.

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 National Insurance contributions at April 2016 is entitled to a starting pension equal to the higher of their entitlement under the new and existing rules.

A contracted-out deduction is applied for periods of contracted-out employment. The Department for Work and Pensions 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 new State Pension this can be increased by 1/35th for each year of National Insurance contributions or credits after 5 April 2016.

If the starting amount is more than new State Pension 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 new State Pension is based on personal National Insurance contributions rather than the spouses or civil partners. Transitional provisions do 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 is 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.