THE NEW STATE PENSION- KNOW THE FACTS
How will your quality of life affected by the pension changes of 2016?
The state pension has been given a major overhaul and April 2016 sees these changes coming into affect. This report will help you understand how these changes will affect your future pension. It will answer a few important questions, such as how much will you get and when you will become eligible to claim.
Even if your retirement seems a long way off, knowing about these changes is very important because if you are like most people apart from a work place pension, the state pension could be your main source of income.
Pension Changes in Brief
Single-tier, flat-rate State Pension, This will replace the basic and additional pensions for people reaching State Pension age from 6 April 2016 onwards.
The age you qualify for The State Pension changes from 66 to 67 between April 2026 and April 2028
Allows the Government to review how old you will need to be to claim a pension every 5-years.
Is it About Saving Money or Making it simple? – You Decide
The government says it’s about simplifying the process and has put an end to the additional state pension known as (S2p) along with the state earnings pension scheme (SERPS)
What Are The State Pension changes?
From April 2016 the amount you will get from a state pension changes, the new flat rate, single-tier system means you can get a maximum of £155.65.
In addition to this change any extra pensions and ‘contracting out’ will no longer exist as will part of the pension credit. The government previously permitted pension savers to ‘contract out’ of the state second pension; this was to lift the burden of paying all workers the additional second state pension.
This scheme allowed you to pay less national insurance, which meant you didn’t get the additional state pension however the money you saved in reduced national insurance was paid into your private or work place pension. There is also a change to the amount of years you will need to pay national insurance before you qualify for your pension, this is being increased from 30 to 35 years.
These changes will not affect you if you reach the pension age before the 6th of April 2016.
How much state pension will I get?
People who reach the state pension retirement age on or after the 6th of April 2016 will see their amount calculated using the maximum level of the new state pension, which is £155.65.
Nothing is ever straightforward though, and some people’s starting amount could be more or less than the stated figure depending on how much they have built up in their additional state pension. This could mean they get a higher amount in the same way that those who were contracted out for a long period of time before April 2016 could receive less.
What you get is based on the amount of national insurance you have paid but your payment will not be less than the amount you would have received up to the last day of the old system (5th april 2016) This assumes you have paid national insurance for at least ten years (the minimum qualifying period).
Contracted out or contracted in?
If you have been paying national insurance payments at a reduced or receiving a rebate into your pension fund then you have been contracted out to one of the two following schemes
1) DB Scheme
2) DC Scheme
The new system makes a reduction in the flat-rate pension in the same way a ‘contracted out-deduction’ has been made from your additional state pension under the old system.
If you’ve been contracted out but continue to work for a few more years after 2016, making full-rate NI contributions, you can continue to build up further state pension pot until you reach the full flat rate.
Anyone who has accrued a certain level of state pension will not lose out as a result of the new rules that take effect on the 6th of April 2016. To ensure this, the government will make the following calculations.
1) Your state pension entitlement under the old rules
2) Your state pension entitlement under the new rules from 6 of April 2016.
Your starting amount will be the higher of the two figures, worked out using the calculations above, this will be known as your ‘starting amount’. It is important to know that if this is greater than what you will get under the new scheme you will be awarded the higher amount.
Example pension forecast
Getting your head around how the new rules will effect you can seem a daunting task, hopefully this report has given you a better understanding of how the new state pension rules will affect you personally, for more information click pension forecast to see what you may be entitled to when you retire based on your National Insurance contributions.
A new calculator is being built to help you get an estimate of your state pension. The current pension statement will also tell you exactly when you will reach the state pension age and can claim your pension.
For more help and advice please do not hestate to contact us at Hoskin Financial.
THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL