What's happening with the state pension in 2016? How much will I get under the new state pension?
Some major changes to the state pension came into force on 6 April 2016. This guide will help you to understand how the changes will affect you and what you can expect in the way of a state pension if you qualify for the pension on or after 6 April 2016.
For many people the state pension forms the core of their income, together with any workplace or personal pension provision that you have.
The new system aims to simplify the process and sees the end of the additional state pension, called state second pension (S2P) and the state earnings related pensions scheme (SERPS).
Video: what's changing in April 2016?
Our short video explains the state pension changes.
We regularly cover pensions in Which? Money magazine. If you'd like to read our latest pensions investigations, as well as expert guidance on savings, investments, tax and more, try Which? Money for two months for £1.
What are the state pension changes?
The amount of state pension you get will change if you qualify for it on or after 6 April 2016. The basic and additional state pensions are going to be replaced by a flat-rate, single-tier state pension with a full level of £155.65 in April 2016.
The table below compares the current and new systems based on 2016/17 figures.
|State pension: what's changing?|
|Qualifying years needed||What you get||Full level of state pension||Deductions||Contracting out||Pension credit|
|Before April 6 2016||30||Basic state pension plus additional state pension||Basic state pension £119.30||Deduction for years contracted out of additional state pension (during transitional period)||Yes||Guarantee credit and savings credit|
|After April 6 2016||35||Single payment||New state pension £155.65||Deduction for years contracted out of additional state pension (during transitional period)||No - additional state pension no longer exists||Guarantee credit|
The additional pensions and 'contracting out' has been abolished, and so has part of the pension credit for those qualifying for the state pension on or after 6 April 2016.
To lift the burden of paying additional state pension to every worker, the government previously allowed pension savers to 'contract out' of the state second pension.
You paid less National Insurance and therefore didn't get the additional state pension, and the money you saved in National Insurance was put into your workplace or private pension. Qualifying National Insurance years will also be increased from 30 to 35 years.
If you reach state pension age before the 6 April 2016 then the changes to the state pension will not affect you.
For more: State pension explained - the Which? comprehensive guide.
How much state pension will I get?
If you reach state pension age on or after 6 April 2016, your state pension figure will be calculated using the full level of new state pension of £155.65.
People might get more or less than the indicated full new state pension (eg their starting amount). Those that have built up a certain amount of additional state pension will get a higher amount, while those that were contracted out before 6 April 2016 for a significant time will probably get less.
This figure will be whatever is higher – either the amount you would get under the old system or the amount you would get had the new system been in place over the whole of your working life.
Exactly what you'll get, which is based on your National Insurance record, will be no less than the amount you'd have received on the last day of the old scheme (5 April 2016). This assumes you have the minimum number of years on your National Insurance record to get any state pension (10 years).
Contracted out or contracted in?
The new system makes a reduction in the flat-rate pension in the same way a 'contracted out-deduction' has been made from your additional state pension under the old system.
If you've been contracted out but carry on working for a number of years after 2016, making full-rate NI contributions, you can carry on building up further state pension until you reach the full flat rate.
The new rules mean that no-one will lose any additional state pension they've accrued while contracted in. If you collect your state pension on or after 6 April 2016, the government will make two calculations.
The first will be your state pension entitlement under the old rules. The second will be the amount of state pension you are entitled to under the new post-April 2016 rules.
Whichever value is the highest is called your ‘starting amount’. If this is more than the full level of new state pension, you’ll get the higher amount.
A pension forecast
You can currently get a state pension forecast from the Department for Work and Pensions (DWP) at:
www.gov.uk/state-pension-statement or by calling 0345 3000 168.
The forecast gives you an estimate of what you can expect in terms of your state pension based on your National Insurance contributions.
A new calculator is being built to help you get an estimate of your state pension. The current pension statement will also tell you exactly when you will reach the state pension age and can claim your pension.
Your state pension questions answered
The Which? Money Helpline offers tailored on a wide range of topics including the state pension. If you're not a Which? member, and you'd like to get unlimited access to our Money Helpline experts, you can try Which? Money for two months for £1.
- What the pension changes mean for you - your options for taking your pension fund
- State pension explained - the Which? comprehensive guide to the state pension
- I want to carry on working in retirement - where you stand if you work on for longer
Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.