Lucia Cook, paraplanner at Provisio Wealth Management, details the winners and losers of the new state pension in April’s guest blog.
The Government have replaced the old State pension system with what it argues is a simpler, single-tier pension for those reaching State pension age from 6 April 2016.
The average state pension payment under the previous system was £130 a week. The full rate of New State Pension is £155.65 a week (for tax year 2016/17).
Will those who qualify after April 2016 be better off under the new system?
New state pension winners
People in the following groups will generally be better off under the new system:
- women, carers and the low paid who haven’t built up additional state pension
- self-employed people who didn’t qualify for state second pension
- people who were contracted out and can access their private pensions at age 55
- workers contracted out who have time to build up years of full National Insurance (NI) contributions
New state pension losers
The following groups will generally be worse off, or no better off, under the new system:
- people with less than 10 years of NI qualifying years
- people with more than 35 years’ worth of full NI contributions
- high-earners who won’t be able to build up more additional state pension (ASP)
- younger employees who will no longer be able to build up ASP
- spouses, civil partners, widows and widowers who will no longer be able to claim or inherit a state pension based on a partner’s NI contributions
Those already drawing the state pension won’t be affected.
The below infographic highlights the period 2016-2020, some 51% of men who get the state pension for the first time will be better off, but 28% will be worse off (21% will get about the same – shown as amber).
Will everyone get the full amount?
No – the number of years of full National Insurance (NI) contributions will go a long way to determine what you’ll get but you’ll need to have paid in 35 years of National Insurance contributions to get the full amount. Many people will have clocked up less than 35 years of NI contributions because of gaps in their working record. If you have fewer years of contributions, you’ll get a proportionate amount, but no pension at all if less than 10 years.
What if I’ve been contracted out for a while?
Even with 35 years of contributions, you may have contracted out some of your NI contributions to private pension schemes and will therefore get less than the full level of new state pension (£155.65). Working out how much you’ll be deducted is complicated, but broadly depends on when you were contracted out, for how long and your earnings at the time.
The next step
If you would like to speak with a pension specialist to discuss what this could mean for you, please contact the Provisio team on 01462 687337 or email email@example.com.
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This blog first appeared on www.provisio.co.uk