The new State Pension came into force for people who reach state pension age on or after 6 April 2016. The good news is existing state pension benefits are taken into account when calculating new State Pension benefits, the bad news is it's complicated.
When a change is made, a way has to be found to protect the existing entitlements which people have built up.
Entitlements were protected by simply layering the new benefit structure on top of existing benefits.
The pre 6 April 2016 entitlement was built up starting with the basic state pension, then any graduated pension, state earnings related pension scheme and finally any state second pension entitlement.
Existing pre 6 April 2016 entitlements are consolidated in one single starting amount.
Further entitlements, if applicable, are built on top using the new rules.
The starting amount is the higher of an individual's entitlement under the old state pension rules and the amount they would notionally have earned under the new State Pension.
Both values are calculated as at 5 April 2016 so they can be compared. The larger amount becomes the starting amount.
If the starting amount is less than the maximum rate under the new State Pension individuals can continue to build on this using their National Insurance contributions (or credits) up to the equivalent of £185.15 a week.
If the starting amount is greater than the maximum rate, that amount will be protected but no further state pension can be built up, even though National Insurance contributions will continue for those with earned income.
Pre 6 April 2016 entitlement exceeds the notional new State Pension entitlement, both less than £185.15 a week.
The starting amount is equal to their pre 6 April 2016 entitlement, and a further £5.29 a week may be earned for each future year of National Insurance payments, up to a maximum of £185.15 a week.
Current entitlement is less than the notional new State Pension entitlement, both less than £185.15 a week.
The starting amount is set to the notional amount they would have earned if new State Pension had already been in place. A further £5.29 a week may be earned for each future year of National Insurance payments, up to a maximum of £185.15 a week.
Starting amount is greater than £185.15 a week.
The starting amount is equal to their pre 6 April 2016 entitlement, however, no further entitlement can be earned. The individual will receive the foundation amount plus any increases/uprating for inflation.
Married women who chose to pay lower National Insurance and rely on their husbands National Insurance record instead are still able to claim pension benefits on his record, even following a divorce.
Women born before 6 April 1953 may be able to claim an increase to their basic State Pension based on their spouse’s or civil partner’s contribution record. This is explained in our State pensions for women article.
Department of Work & Pensions have produced a number of new State Pension factsheets.
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.