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The flat rate state pension: FAQ

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.

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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.

Retiring before April 2016?

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 pension 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).

Find out more about the existing pension system here

Retiring after April 2016?

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:

National Insurance contributions

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.

Did you know

You could end up paying higher NI contributions than you do now if you are in a final salary pension scheme.

Pension increases

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.

Pension eligibility

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

What is changing for families?

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)

How to work out what you will get

The new state pension will be worth £4.32 per week / £224.64 per full year* for each year you paid National Insurance.

* subject to inflation

To find out how much you would earn under the single tier state pension, multiply by your qualifying years.

If you had 12 qualifying years you would do the following sum: £224.64 x 12 = £2,695.68 This would mean that your weekly pension payments upon retirement would be: £2,695.68/ 52 weeks = £51.84 per week.

Save for retirement yourself

If the state pension will not provide enough income for your retirement, you will need to put money aside yourself.

A personal pension is a tax efficient way to save, and you will still get the state pension on top as well. You could also consider some alternatives to a pension like an ISA or property investment

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