State Pension Changes - April 2016
As many readers will be aware the State Pension changed on 6 April 2016. If you reached State Pension age on or after that date, you’ll now receive the new State Pension under the new rules. Interestingly, the new regime is designed to make the pension simpler to understand, but as with so much government legislation the reverse often appears to be the case.
The basic and additional State Pensions have been replaced by a flat-rate, single tier new State Pension with a full level of £155.65 per week, and depending on your personal circumstances this may be subject to tax, albeit it will always be paid gross.
However, your National Insurance record is used to calculate your new State Pension, and you’ll usually need ten qualifying years to get any new State Pension. To achieve the ten years qualifying period you must have either been working and paid national insurance contributions, been receiving NI credits (for example due to unemployment, sickness or as a parent or carer), or have been paying voluntary National Insurance contributions. You may also qualify if you’ve paid married women’s or widow’s reduced rate contributions, but you’ll need 35 qualifying years to get the full new State Pension.
If you have a shortfall in your basic State Pension, making Class 3 National Insurance contributions is one possibility to consider. Class 3 National Insurance contributions allow people to fill gaps in their record to improve their basic State Pension entitlement. Before paying voluntary National Insurance contributions you should however, also consider the impact on any income related benefits you receive, such as Pension Credit.
In reality the amount you receive for your State Pension will be higher or lower than the headline figure quoted by the government depending on your National Insurance record, and it will only be higher if you have over a certain amount of Additional State Pension. You don’t have to stop working when you reach State Pension age, but you’ll no longer have to pay National Insurance.
However, if you have been ‘contracted out’ of the state scheme at any time in your working life the amount you receive under the new state pension may be reduced. Many people will not necessarily be aware that they have been contracted out at some time, but it is worthwhile checking the impact that this might have on future state pension entitlements. You’re more likely to have been contracted out if you worked in the public sector, for example, the NHS, local councils, fire services, the civil service, teaching, police forces or the armed forces.
If you do not wish to draw your State Pension when the time comes, you do have the option of deferring it. Taking this option means that you may receive extra State Pension when you do draw your benefits. Deferring your State Pension could of course affect your other benefits and tax credits. You’ll need to defer for at least nine weeks – and your State Pension will increase by 1% for every nine weeks you put off claiming. This works out at just under 5.8% for every full year you put off claiming. After you claim, the extra amount you get because you deferred will usually increase each year.
If you would like to learn more about the new State Pension changes please contact Shaun Bell or Stuart Read at Sabre Financial on 01548-856444 or via email at email@example.com or firstname.lastname@example.org.
Sabre Financial is a trading title of Sabre Financial Planning Ltd. Sabre Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.
By Sabre Financial | Wednesday, May 18, 2016