Confused about what the changes to the state pension could mean for your retirement income? Royal London answers your questions.

Am I affected?

From April 2016 the state pension is changing to a flat-rate state pension. This will replace the current system of the basic state pension and the earnings-related additional state pension (known as S2P and previously as SERPS). The new full state pension will be no less than £151.25 a week (the exact amount will be set in autumn 2015).

If you’re a man born on or after 6 April 1951 or a woman born on or after 6 April 1953, you will get the new state pension. If you reach state pension age before 6 April 2016, your pension will be paid and calculated under the current system.

Will I get more or less than I was expecting under the current system?

It depends. Some people could get more (for example, the self-employed and some women), others may get less. However, you will not lose any state pension you’ve already built up under the current rules (providing you’ve built up at least 10 years of National Insurance contributions (NICs) or credits before State Pension age). We explain further below.

How will the new state pension be calculated?

If you’re starting working life under the new system, you’ll need 35 years of NICs or credits to qualify for the full new state pension

If you have less than 35 years you'll get a pro rata amount. For example, assuming the full state pension amount is £151.25 and you have 25 years of contributions, you’ll get £108 a week (25/35ths of £151.25)

You'll need at least 10 years of NICs or credits to qualify for a state pension.

 

What happens to the state pension I’ve already built up?

If you’ve already built up some state pension, your National Insurance record as at 6 April 2016 will be translated into an amount under the new state pension system. This will be called your starting amount. Your starting amount is calculated by taking the higher of:

  • The amount your state pension (your basic state pension plus any additional state pension) is worth under the current scheme as at 6 April 2016
     
  • The amount your state pension would have been as at 6 April 2016 had the new state pension been in place for the whole of your working life (minus a deduction if you’ve been contracted out of the additional state pension at any time).

If your starting amount is equal to the full new state pension, you’ll get the full new state pension amount when you reach state pension age.  You won’t be able to build up any more state pension after 6 April 2016.

If your starting amount is higher than the full new state pension, you’ll get the full state pension amount when you reach state pension age plus an extra amount (the difference between the full new state pension and your starting amount) as a separate protected payment. You won’t be able to build up any more state pension after 6 April 2016.

If your starting amount is less than the full new state pension amount, you’ll be able to build up more state pension after 6 April 2016 up until you reach State Pension age (but only up to the full new state pension amount). Remember you’ll need at least 10 years NICS or credits to get any state pension.

State pension statements showing how much you’ll get under the new state pension are now available for anyone who is over 55.

This article was provided by Royal London - Reader’s Digest Over 50s Life Cover partner. If you would like to receive a free, no obligation quote for Royal London’s Defaqto 5 Star Rated Over 50s Life Cover simply call 0800 022 4994 and quote PTN026 or visit royallondon.com/readersdigest

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