The State Pension changed on 6 April 2016. If you reached State Pension age on or after that date you’ll get the new State Pension under the new rules. The new State Pension is designed to be simpler than the old system.
The old UK state pension system has two parts – the Basic state pension, based on 1/30th of £119.30 (the full rate) for each qualifying year, up to a maximum of 30 years, plus additional State Pension, if any, based on earnings.The new state pension is aimed at providing a much clearer simpler mechanism for the payment of pensions.In order to receive the new state pension you will need to be deemed as eligible and satisfy certain criteria:
Your national insurance record is used to calculate how much of the state pension you are entitled to. Here are the basics you should be aware of:
A qualifying year is a tax year in which a person received (or was treated as having received) earnings of at least 52 times the weekly lower earnings limit for the year
If you are employed a qualifiying year is a tax year (6th April to 5th April where you earned a minimum amount from one job. In 2016/17 the minimum amount was GBP 5,824
The Department of Work and Pensions will use the qualifying years on your NIC contribution record, to work out how much State Pension you would get under the new rules.
You can find out just how many qualifiying years you by visiting the HMRC wesbite:
Once, you have worked out how much pension you are currnelty entitled to there are various other aspects you should be aware of. An important area of consideration is the growth the new state pension will receive in retirement. Under current rules the new state pension will benefit from what is known as the ‘Triple lock'. This means that the single-tier pension will be indexed each year, at least in line with the growth in the highest of earnings, CPI or 2.5%
UK citizens retiring to the European Economic Area – including members of the EU plus Norway, Iceland, Liechtenstein and Switzerland, currently have their UK state pension protected to ensure they receive increases in line with retirees living in the UK.
Usually you can get your UK State Pension paid anywhere you live. However, if you live outside the UK and get a UK State Pension, you will not get annual increases unless you live in one of these regions.This means that many pensioners who retired to live abroad don’t receive annual state pension increases. For example, someone who retired in 2000 would still be receiving the weekly rate of £67.50 paid at the time. So for those planning to retire outside of the qualifiying regions, ensuring you are entitled to the full amount may not be of such importance.
The new single-tier pension may also be deferred and taken as an increased weekly pension @5.8% pa or 1% per 9 weeks. But, unlike the basic state pension (BSP) there will no longer be an option to take deferred payments as a lump sum.
If you leave the UK you may need to decide whether you wish to pay voluntary National Insurance contributions while you are away. This is likely to depend on whether you plan to claim the UK state pension in the future, whether you’re likely to be returning to the UK, as well as the state pension entitlements you’ve already built up.
Expats and former expats may make voluntary contributions to fill any gaps in their NI contributions whilst they were living over seas. The decision will depend largely on personal circumstances and it may be more prudent to put the money into a separate investment.
Topping up NI contributions is not worth doing for everyone. In particular, younger people who have many years of their working lives to go, and married women, may see little or no benefit. You usually have to make up the shortfall within six years of the end of the tax year for which the contributions are being paid.
Something else you may need to consider is whether you were contracted out, this will affect your pension entitlement and means many middle to higher earners with final salary pensions don't get the full new flat rate pension.
Each of us will have different circumstances to take into consideration but the first port of call is finding out where you currently stand in terms of qualifying years and how much more you need to attain by your SPA date (your state pension age) in order to recieve the full amount available.