Plans for the new flat rate state pension have now been set out. Here is what it means for you, whenever you are set to retire.
On 14th January, 2013, the coalition government announced plans for a new flat rate state pension.
The move to the new 'simple' single tier system will be the biggest shake up to the state pension in almost a generation.
It is important you understand how you will be affected whether you plan to retire sooner or later.
Here is what is set to change and what it means for your retirement plans.
If you are currently in receipt of the state pension or planning to retire before the flat-rate pension is officially brought in, you will not qualify for the new flat-rate pension. Instead, you will continue to receive payments based on the existing system.
This is currently £115.95 a week, or more if you receive pension credit and/or the second state pension.
Non-working partners in married couples can claim up to £69.50 per week married couple's pension throughout their retirement (calculated using their spouse's National Insurance record).
If you live in England, Scotland or Wales and plan to retire after April 2016 it is likely you will receive the new flat rate state pension when you stop working.
Here is what it means for you:
You will need to make NI contributions for at least 10 years to qualify for anything (compared to the 1 year you need currently) and this will only entitle you to £42.40 a week
You will need to build 35 years' National Insurance contributions before you qualify for the full state pension (it is currently only 30 years); however you can pay to top up your National Insurance contributions
You will receive the equivalent of £148.40 a week (£7,718.80 a year) as long as you have built 35 years' NI contributions - this is likely to be slightly more once it is uprated by inflation
You could end up paying higher NI contributions than you do now if you are in a final salary pension scheme
The new flat rate pension will rise in line with average earnings, and most likely with the CPI measure of inflation and a minimum of 2.5% as well (as the state pension does currently)
Means-tested pension credit, the second state pension and other top-up pension arrangements will be stopped
The state pension age is set to rise to 66 for everyone by 2020 and then to 67 by 2028. However, this will be reviewed by the government every 5 years starting from 2016.
People who live abroad will also be affected by these changes; unless you have built up the minimum years' NI contributions, you will lose your entitlement
Only your National Insurance contributions will be taken into account, meaning you cannot claim based on your partner's working history (married couple's pension will be abolished)
Pension eligibility will be on an individual basis, which means married people without enough qualifying years will no longer receive a proportion of their partner's entitlement when they die.
You will still build state pension-qualifying years even if you take time out from working to raise a family (this is not currently the case)
The new state pension will be worth £4.24 per week / £220.48 per full year (subject to inflation) for each year you paid National Insurance. To find out how much you would earn under the single tier state pension, multiply by your qualifying years (e.g. 12):
£220.48 x 12years = £2,645.76
Thus your weekly pension payments upon retirement would be: £2,645.76/ 52weeks = £50.88 per week.
I already get state pension,so I won't get the new rate,but it's stupid that we will have the two different systems,surely it would be simpler if everyone was the same?!
Hi I am 66 and have been getting my pension since age 60. This year I remarried, my husband does not retire until January, will getting married affect my pension? I receive a full state pension which was made up by my ex husbands contributions.Thanks Sandy
I've paid NI contributions for 42 years so far but reach retirement age in Oct 2016 and because I've saved won't get any top up so will be on £107 pw. My wife is in the same boat and reaches retirement age in March 2017. We've both lost out to the combined tune of over £3000 per year for the rest of our lives. How can it be fair that if we'd been born a few months later but had paid NI for fewer years than we have, we'd end up with more? Sounds like the politics of a madhouse. Nice one Govt, I've never been shafted so well.
What I don't understand though is that if the new flat rate scheme is "cost neutral" what's the problem with everyone being on it? Maybe it's only cost neutral though if they cheat a few million existing (and soon to be) pensioners to pay for it.
Here's hoping there's enough MPs with the conscience and sense of fairness to all citizens to at least get things changed when this bill comes before parliament - or heaven help this country.
If each of you were "Not Contracted OUT" when paying your NI contributions, then you should both have increased your BASIC STATE PENSION of £107.42 in today's money by the addition of SERPS(State Second Pension). This figure will be given to each of you nearer your retiring age.
For the under fifties the flat rate pension and NEST are nothing more than a stealth tax. S2P will come to an end which would have been worth about £80 per week to me when I retire, on top of the basic pension.
Now I have got to pay 5% or more of salary in order to get any extra. If you are under fifty it looks like you have got to pay for not only your own pension but the baby boomers as well. Revenue neutral it may be, fair it certainly is not.
I am already on a state pension, so it doesn't affect me, but I am wondering,Bast, if you can defer your pension for a year, as you can at the moment, and then qualify for the new rate! Financially you should be a lot better off if you could do this.
You can defer, but not with the intention of trying to get the new Single Tier Rate. It is your STATE PENSION AGE that is the controlling figure, NOT when you decide to take your State Pension.
I am still confused! At the tender age of 61 I don't intend to retire until after April 2-17 when I shall be 65. However, I have only been in employment for the past 24 years as before that I was caring for my severely brain injured child at home for 11 years and then my two surviving children until the youngest started school. Does anyone out there know if I will be able to add those child rearing years to my contributions? Kate
Yes, as a stay at home /parentcarer you have what used to be called protected contributions for those years and they are added to any paid contribution years to make up your total, so if you've worked and paid NI for 24 years, plus 11 years at home caring for your childrenyou have your 35 years needed for full pension
Is this a contradiction? If you have completed your 30 years of contributions now (and anyone above the age of 50 could have!) but are retiring after the the proposed change to the new scheme (ie 2017) - do you have to contact DHSS to ensure that you now restart payments to ensure the full pension (ie to complete the new 35 years contribution)?
Firstly, get an accurate figure from them as to the number of qualifying years you have. They will be snowed under(excuse the actual real weather) with requests from people wanting to know where they stand. Wait a few months. I know in the past all they use to say was "You have sufficient to receive a Full State Pension" now such a broad non-descript statement could mean you have just barely 30 years or you might even have 34 years! Until they tell you accurately, you won't know your next move.
I have been well and truly stuffed then. I took 2 years out in 1973 when my son was born, paid full stamp before and after that and then in 1991 left work early to care for my Husband and Grandmother, then my mother and her friend. I was caring for 3 people at one time, before two of them passed away, I had been advised that as I was caring I would have my stamp paid, they forgot to mention that I needed to claim Carers allowance so for the first 10/ 12 years I did not, no stamp paid, will not have 35 qualifiying years. No problem they said if you husband lives till retirement age you can claim on his conrtibutions, they have now even taken that away so I am now 58 (Born in March 1954) so I should now "retire" at 64 years and 11 months on £41.00 oer week and no pension credit to top it up. My rent is more than that, how am I supposed to live?
I will be 65 on the 18th September 2016 which is some months before the new Flat Rate State Pension proposal in April 2017. Currently I do not plan to retire at my 65th birthday and therefore should I plan to retire any time after April 2017, can I then claim the new (and higher!) pension rate?
Sorry b4mygrave, it's not WHEN you retire, but when you reach STATE PENSION AGE that is the main figure they are after.
reddragon - there are going to be many, many cases of unfairness over these ill thought through proposals.
I looked up the white paper yesterday and could only find this section from the Exectutive Summary that even mentions existing pensioners when the changes take place (apologies for the split infinitive but it's in the white paper):
"13. The single-tier reforms will restructure current expenditure on the state pension into a simple flat-rate amount, to provide clarity and confidence to better support saving for retirement. Those already over State Pension age when the reforms are implemented will continue to receive their state pension (and the Savings Credit, where applicable) in line with existing rules."
There's a whole section in the white paper (Sect 4) about transitional arrangements, but these only refer to those qualifying for the new scheme.
We need one pension system for ALL citizens of this country, not one that creates second class pensioners. I'm not saying everyone should get the flat rate immediately, but surely it's not beyond the wit of these people to devise some better transitional arrangements to move to one system other than leaving those on the old system - which is truely rubbished in the white paper - until they wither away and die.
The whole thing stinks and those who are behind this should be truely ashamed of themselves.
Will I still get the extra pension credit I have built up over the years(currently £126) on top of the £144 proposed in 2017 as I retire in 2016 when I am 65?
Hi jmmy, If you reach State Pension Age in 2016 the present scheme will apply to you. I think you mean State Second Pension (not Pension Credit) Yes, If you will be on the present scheme of Basic State Pension of £107.42 topped up by your SERPS/SSP accrued amount then you will continue to get your top up. You don't move on to the SINGLE-TIER pension of £144 in 2017, you stay on the Basic Plus Serps. These will naturally be increased by the triple-lock addition of a minimum 2.5% each year.
So I lose out ,on a lower pension than someone (even if they have never worked ) who reaches pension age in 2017?
Re current state pension: I think you will find that the 2.5% annual increase applies only to the basic state pension NOT the second pension amount..
In my previous pension which is no longer being contributed to I opted out of SERPS. Should I now be contracting back in? Is there anything I can do if I have a shortfall of the 35 year NI contributions because of this?
Hi lahf1, welcome. Let the dust settle for a few weeks and then request an upto date calculation as to how many years of NI contributions you have. If you are under the FULL 35 years now required, then you could purchase Class 3 Voluntary contributions. These are currently £689 to buy back 1 year. If you currently only have 30 years then you'd need to buy 5 years (£3,445) This is a lot of money but if you can keep living for 3.25 years after receiving your State Pension, then you'll have broken even, and the longer you live after then, the more you'll be gaining from DWP! Hope that helps. I'm in the same situation myself.
I'm 61 and lost my job last year. I'm not actively looking for another job, so consider myself to be retired. According to your article, I fall into the category 'planning to retire before the flat-rate pension is officially brought in' and hence you suggest I won't qualify for the new flat-rate pension. Surely this is based on your age, rather than when you plan to retire, as I have assumed I don't qualify for pension payments until 65?
you say the state pension is 107.45 or up to 142.70, but ihave been told I wil get 159.93 ?
I retire in 2018 which I means I come under the new flat rate pension. I have paid NI for 48 years, does that mean there is no extra on top of the flat rate? someone retiring now only has to work 30 years and receives the extra SSP. I feel I have been victimised for working hard and paying a lot of money into the system
I remain somewhat confused by the payments relating to SERPS/SSP. I have been "contracted in" since its introduction and I am a higher-rate taxpayer with more than 35 years' contribution. I retire in 2020, with a short period of a final salary scheme and a far longer period of money purchase scheme. From 2020 Do I just receive the £144 (current valuation)? Or are the SERPS and SSP payments that I have already made "protected", meaning that I will receive a pension linked to my earnings?If the answer to these questions is "yes, you just receive £144" and "no, they aren't protected", then surely I would have been far better off if I had contracted out of SERPS and SSP than I will be from having been contracted in?
I will be entitled to state pension on 13 July 2016, I have never contracted out and have paid the higher rate NI contributions, the flat rate pension would leave me substantially disadvantaged as I am entitled to SERPS, I will take this to the European Court of Human Rights or a refund of the extra NI payments with a lot of interest
I quit the rat race in 2006 but don't get a pension until 2023. At that time I had 33 qualifying years so my forecast was basic pension plus second state pension to take it to £175 a week ish. Would it be worth me paying the extra 2 years NI to make up to the new min.qualifying rate, and will I get £144 or more because of the years of second pension payments I made?
How will one tier pension affect a woman of 70 with no ni contributions whose husband is 65 July 2016 will she get a spouse pension still?
I am still confused by all this, currently if you receive pension credit it opens up entitlement to other 'shoulder' benifits such as housing benefits and council tax relief ect If when the new flat rate pension starts pension credit is abolished how will you then qualify for these benefits?
They are not abolishing State Pension Credit, it's simply changing for new claimants in 2016. If you currently receive SPC you will continue to receive this under existing rules. Bear in mind they are looking to further amend SPC to include Housing Benefit, tax credits, etc but as far as I can see the Pension Service will merely pay what the LA currently pay, so shouldn't be a noticeable difference. (Until it goes south!)
I retire 24/06/15, if I defer my retirement till 2016 will I qualify for the new regime ie £144 flat rate.
I have accrued £45 per week second state pension.Will I still be able to claim this when I retire on 6-4-2016. Paul
I am 62 years old in August 2013. I have an occupational pension via the Civil Service. I have worked over 43 years. I will qualify for a Civil Service Pension and the Current State Pension. Are there any plans to equal the current rate of State Pension with the singe tier Retirement Pension gradually over the forthcoming years? Or will the current state pension be increased annually under the current system and will therefore ALWAYS be less than the new single tier RP? If the current RP and the proposed single tier RP are increased at differing rates annually then the current RP rules will exist until all the current RP claimants up to April 2017 die.
lots of updated info on here https://www.gov.uk/government/publications/the-single-tier-pension-a-simple-foundation-for-saving--2
This might be a duplicate response as I am not very IT literate. I have read the link you suggested but feel I need to take time to digest all it's information. It does appear that the current State Pension will always be assessed on current rules. This means there will always be 2 separate types of state pensioners frm 2016 when the single tier system is introduced. Many thanks for sending the link. I am annoyed with a system that does not really reward the hard work I have done since age of 16 years for 5 different employers. I have had no children and not claimed benefits but when I do I get less than those who may be have never contributed.
For years I paid voluntary contributions. I reach pension age in 2021. The national insurance agency wrote to me a few years ago and told me not to make any more contributions because I had what was necessary to get a full pension. Do the new rules mean I will have to start contributing again?
why do you vote these people in
I am 64 and receiving guarenteed pension credit. When I am 65 next year I will qualify for savings pension credit. But what happens after 2016 when GPC is scrapped, will I loose SMI?
They are not scrapping Guaranteed Pension credit, it's savings credit that is being abolished for new claimants beyond 2016. If you reach 65 prior to the changes taking effect in 2016 then you will continue to be entitled to Savings Credit (and potentially continue to qualify for Guaranteed Credit depending on your household income when you reach 65)
I think some of these questions need answering,Hannah.
if you pay all your working life in to a pension you get less that anyone who has never worked or payed into it in 2016 what a rip off !!
This seems impractical. The basic structure of society is of couples living together and sharing expenses. Under the new system when one dies there will be a larger hole in the survivor's finances, probably causing hardship.
I am 65 in January 2017 so I assume I will qualify for the new flat rate pension. I have 40 yrs NI contributions and I'm opted out of SERPS. A quick calculation gives me a state pension of £7500 / maybe £8000 with inflation? Is this correct?
You can work out how much you receive using a http://www.pension-calculator.co
i will retire officially in march 2014 at age 65. I have received my final pension figures from DWP. It states that I have £100.15 basic + Additional State pension of £60.50 but then deducts £26.00 for LESS contracted out leaving me with £149 per week and that is for working all of my life and paying as requested, why give it on th eone hand then take it off later?
Surely you're contracted out is in a private pension pot like mine which has done better than SERPS so you will get 25% tax free lump sum and can either drawn down or take an annuity with the remainder which should leave you better off? plus any other pension provision you may have made.....this is what makes us better off than those that haven't paid in anything.
I am 34 & plan to council rent for life. Is it worth me saving & starting a private pension, or not do so & wait for retirement with nothing in place as the more savings you have the less help if any the government will provide in the way of benefit.
Why would you council rent for life if you are working??
Why do you confuse people by suggesting that when they plan to retire really has anything to do with how much state pension they get.
Its the date you reach state pension age that counts. So planning to retire before or after April 2016 is irrelevant.
I would strongly suggest that if you can you should continue working past state retirement age for three reasons:
1) You stop paying NI when you reach state pension age so for a that about 9% or more take home pay unless you earn over about 35,000 pounds. Over 35.,000 pounds a year you would have paid only pay 2"% on the excess so thats all you save on the excess part.
2) If you have enough money to live on from your normal job you can defer taking the state pension and either take a taxable lump sum at the end of the year or have you state pension increased by about 7%. for each year you defer.
3) Employers can no longer get rid of you just because you reach state retirement age, They can get terminate your employment in certain circumstances mostly related to be incapable of doing the work. In a lot of cases they would have to make you redundant and pay statutory redundancy pay (or an enhanced version of it depending on your contract) where i believe up to 30,000 pounds would be tax free.
Note, i dont work in HR, a Tax office or having any qualifications in this area.
So these 3 things are guidance only and you would need to do your own research to determine if you would benefit from them and whether it would be right for you.
Knowledge is power and when it comes to state pensions and company and personal pensions there is a lot of confusion and lack of knowledge. This is one area where the government and others should be holding classes to inform would be pensioners of there options so they can make informed decisions some of which are one time only and once made there is no going back.
Hope you find the information useful and you follow it up to ensure you have the information to help you make the right choices for your set of circumstances.
Hi, chrisla97, and welcome to the forum.
Thanks for your excellent post!
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