State Pension: Understand What You Are Entitled To

While the State Pension is modest, it should not be discounted when it comes to income planning in retirement.  Even if it is not enough to maintain your lifestyle it will certainly contribute towards your income in retirement.  It is therefore important to understand how much you are getting or will get and keep this in mind when planning or managing your retirement income.

The State Pension changed on 6 April 2016.  Anyone who reached State Pension age before this date falls under the old system, with those reaching State Pension age after this date qualifying for the new ‘single tier’ State Pension.  There are a number of key differences between the two systems but transitional arrangements are in place to ensure no-one is disadvantaged by the move to the new rules.

The maximum payment for the new State Pension is currently £164.35 a week, as opposed £125.90 for the old basic State Pension.  However, under the old system it was possible to accrue additional state pension on top of the basic payment through the State Earnings Related Pension Scheme (SERPS), the Second State Pension and the State Pension top-up.  These schemes were place at different times.  There is no such scheme under the new system.

Under the new system, 35 qualifying years of National Insurance Contributions or credits are required to obtain the full amount whereas only 30 years were needed under the old system.  Ten qualifying years are required to be entitled to any amount of State Pension at all, whereas only one year was needed under the old system.

The final key difference to note is that under the new system it is not possible to claim based on a spouse’s/civil partner’s National Insurance record. 

Anyone who is not yet in receipt of their State Pension can check their entitlement at https://www.gov.uk/check-state-pension.  Options for boosting your State Pension entitlement include making voluntary National Insurance Contributions where there is a shortfall in the National Insurance record, or deferring State Pension beyond State Pension Age.  If the State Pension is deferred it will be paid at a higher rate when it is eventually claimed, on the basis that life expectancy is shorter at an older age so the pension is expected to be paid for fewer years.  Please note the suitability of these options will depend entirely on personal circumstances.  If you are unsure of the best course of action please seek financial advice.

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