To ask any question about the new flat rate State Pension scheme seems to suggest a straightforward answer. Everyone will get the same amount won’t they? The answer to the latter question is no. The amount you will get will depend upon a number of factors including:
- how many qualifying years you have on your National Insurance (NI) record
- how many years you have built up an entitlement to the additional State Pension under the current system
- how many years you may have been paying lower NI contributions because you have been in a salary-related workplace pension scheme or you received NI rebates which went into a personal pension plan.
Either of these scenarios had the effect of ‘contracting out’ a person from full entitlements under the State Pension scheme. The new State Pension scheme applies to everyone who reaches State Pension age on or after 6 April 2016.
How much do you get under the new State Pension
The full State Pension has been set at £155.65. People who have no contribution record under the current system will have to obtain 35 qualifying years of National Insurance credits on their record to give them the flat rate amount. However, for individuals who have already built up a National Insurance record (which is nearly everyone reading this article) there are transitional provisions which take into account the NI record accrued up to 5 April 2016. This is a very reasonable complication to have in moving to the new system. Otherwise, people who have accrued a substantial entitlement under the current system of basic and additional State Pension would be treated very differently depending on whether they reach State Pension Age on the 5 April 2016 (and thus receive a pension under the current system) or on the 6 April 2016 (and therefore receive a pension under the new system).
What about transitional provisions
Under the transitional provisions, your NI record before 6 April 2016 is used to calculate your ‘starting amount’ for the new system at 6 April 2016. Your starting amount will be the higher of either:
- the amount you would get under the current State Pension rules (which includes basic State Pension and additional State Pension)
- the amount you would get if the new State Pension had been in place at the start of your working life.
For many of those reaching State Pension age in the near future, the transitional provisions offer the best of the current and new systems. Employees who have built up a significant entitlement to the additional State Pension will retain their entitlement.
People who have been self-employed for most of their working lives may have little or no entitlement to the additional State Pension and thus will benefit from the new State Pension rules.