What's happening with the state pension in 2016? How much will I get under the new state pension?

State pension page 1

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.

 

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Video transcript

After years of complaints about how complicated it is, the state pension is changing radically. In April 2016, in general the new system should be simpler and fairer but there are some catches you need to know about. Currently, the basic state pension is around 116 pounds a week. Some people get some additional state pension on top of this, as well.

The new state pension is still to be finalized but it should be about 151 pounds a week, although you could get more or less than this as we'll explain. It's worth knowing at the outset that you won't get any less than what you would have received under the old system. To get any state pension, you'll need at least 10 qualifying years on your national insurance record.

These are years when you've been either paying national insurance or receiving national insurance credits. You get credits for things like being too ill to work or being a carer or unemployed. The first change is that some women and carers are likely to be better off under the new system because their credits will count for more than they previously have.

Likewise, self employed people are likely to be better off under the new system because their contributions will count for more in the long run. The second change is the number of years you need to qualify for the full a 151 pounds a week is going up from 30 years to 35 years, although you can make out the difference with some additional state pension.

Additional State Pension sometimes called Second State Pension can also boost you to even more than a 151 pounds a week. But if you are opted out or contracted else is technically known of the second state pension so that you're paying less national insurance but getting a higher private pension, you're likely to have less than 151 pounds a week at the start but you can build up to that level through further contributions.

Say you have 20 qualifying years on your national insurance record come April 2016, with this you'll get 20/30 fits of the new state pension, which would give you a new state pension of 86 pounds 40 per week. If your aged over 55, you can call the department for working pensions to get an estimate of what you'll get.

If you reach state pension age before the 6th of April, 2016 the changes won't affect you. In April 2016 the pension will continue as it has before, the old system will apply even if you decide to defer or delay drawing your state pension. There's more about the pros and cons of differing your state pension and topping it up elsewhere in this guide.

So, there are three things that you can do right now. Read the rest of our guide to the state pension changes, work out when you qualify for the state pension by using the calculator in our guide, and call the Department for Work and Pensions to get an estimate of what you'll get. You can call them on 03453000168.

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 neededWhat you getFull level of state pensionDeductionsContracting outPension credit
Before April 6 201630Basic state pension plus additional state pensionBasic state pension £119.30Deduction for years contracted out of additional state pension (during transitional period)YesGuarantee credit and savings credit
After April 6 201635Single paymentNew state pension £155.65Deduction for years contracted out of additional state pension (during transitional period)No - additional state pension no longer existsGuarantee 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?

Contracted out

If you've been contracted out, you've been making NI contributions at a reduced rate (in a DB scheme), or receiving a rebate into your pension pot (in a DC scheme).

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.

Contracted in

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.

 

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Last updated:

April 2016

Updated by:

Paul Davies

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.