It’s six weeks until the state pension system undergoes a radical overhaul, but lots of questions remain about how the new system will work.
Here, we outline five key points you need to know about the new state pension being introduced on 6 April 2016.
1. Not everyone will be covered under the new system
The new system is only for those newly qualifying for the state pension. If you reach state pension age before 6 April 2016, the changes to the state pension will not affect you.
For those qualifying before 6 April 2016, the basic state pension is worth £119.30 a week for a single person in 2016/17.
You may also have built up additional state pension, previously known as State Earnings Related Pension Scheme (Serps) or state second pension (S2P), which will mean you’ll get more than £119.30 per week.
Find out more: When will I qualify for the state pension? – use our state pension age calculator
2. You may not get the full amount of new state pension
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. This is called the ‘starting amount’, but not everyone will get this headline figure.
Those who have built up a certain amount of additional state pension may get a higher amount, while those who were contracted out before 6 April 2016 for a significant time will probably get less.
You’ll get whatever is higher out of:
- the amount you would get under the old system
- the amount you would get if the new system had been in place over the whole of your working life.
Find out more: How much state pension will I get? – use our comprehensive guide
3. Deferring the state pension will become less attractive
You can still put off taking your state pension if you qualify for it on or after 6 April 2016, but the benefit of doing so will be reduced.
At present, for every five weeks you defer, you’ll get a pension increase of 1%. This works out at 10.4% for every full year.
However, for people qualifying for the state pension on or after 6 April 2016, the rate of annual increase will fall from 10.4% to 5.8%, making the offer less attractive.
Find out more: Deferring your state pension – how much you’ll benefit
4. You’ll need more qualifying years than before
Under the current system, you would get a pro-rated state pension based on how many National Insurance qualifying years you had.
If you have less than ten years, it’s unlikely you’ll qualify for any state pension under the new system.
However, the ten-year minimum qualifying period does not apply to certain women who paid married women and widow’s reduced-rate National Insurance contributions under the old system and qualify for the state pension on or after 6 April 2016.
Find out more: National Insurance rates – how much National Insurance you’ll pay
5. Rules for inheriting the state pension will change
The new state pension will usually be based on your own National Insurance contributions, so you won’t benefit from contributions made by your spouse.
This is different to the current state pension system, which allows some people to claim a state pension based on their husband, wife or civil partner’s National Insurance contributions.
However, you may still be able to inherit part of your husband, wife or civil partner’s state pension under certain conditions – namely if your marriage or civil partnership started before 6 April 2016, and your partner either reached state pension age or died before 6 April 2016.
Find out more: Widow’s pension – find out if you’re eligible
- State pension explained – our comprehensive guide to the state pension
- What’s happening to the state pension in 2016 – the new state pension
- Income options for your pension under the new rules – the pension freedoms