New State Pension

Assuming you're the right age, what you get depends on how many so-called 'qualifying years' of national insurance (NI) contributions you have. These are earned over your lifetime and the number you get will depend on how many years you're in work.

You can also build them up as national insurance credits instead, for time spent raising a family, if you care for the sick or disabled, or have spent time enrolled in full-time training.

Here's what you need...

To get any state pension at all

Under the new state pension rules that came in on 6 April 2016, you need a minimum of 10 years before you'll get any payout at all. Reach this and you'll be paid 10/35ths of the total – currently £164.35, or about £47. These qualifying years can be from before or after 6 April 2016 and don't have to be 10 years in a row – they can be dotted about over a much longer period.

However, if you don't manage to meet this minimum, you won't get a penny (although pension credit should be available). Under the old system, there was no minimum threshold – you could still get a small payout even if you had just four or five years.

To get the full £164.35

You'll need 35 years to get this full headline rate (which itself will rise each year by 2.5%, inflation or average wage growth – whichever is highest.) Crucially, you don't have to start from scratch from 6 April 2016 – any years earned before this date will count as well as the ones after it.

And some people can get more. Under the old state pension rules, workers were able to build up what's known as the additional state pension – a top-up to the former basic state pension. Although the new rules have now scrapped this top-up, the Government has allowed many workers in their 40s, 50s and early-60s to keep any of this extra cash already amassed.

It's part of the Government's pledge that people who worked to build up a healthy state pension under the old rules shouldn't lose out under the new one.

To make it work – and it is fiendishly complicated – what you'll get depends on a so-called 'starting sum' calculation. This compares what you'd have been entitled to under the old and new regimes – and, in a nutshell, you'll get the higher of the two.

Say you earned an extra £65 a week in additional state pension over your working life under the old system which would have given you £184.30 a week. This is well over the new £164.35 limit but the rules allow you to keep this extra £19.95 a week.

This extra money is known as your 'protected payment' and will be highlighted on your state pension statement.

To get somewhere in between

You'll get the equivalent value of the state pension according to the total number of years you've built up – so 23 years would give you roughly two thirds of the current £164.35 payout, or about £108.

As a guide to what you might get, multiply the number of years you've got by £4.70 – this figure is what each qualifying year is roughly worth.

There's a potentially nasty sting in the tail, though, for many people who thought they had built up a given number of years. Not all NI years actually count when working out how much you're entitled – this is because they're not treated as 'full' years – and it could mean you end up with much less than you imagined (see 'contracting out' below).

Quick question

It's estimated less than half retiring under the new system will be eligible for the full flat-rate sum in the first five years. This is chiefly due to the numbers of people who won't have enough qualifying NI years because they've been what's known as 'contracted out' of the old state pension in the past.

It's anything but simple so here's a breakdown...

Under the old system, the state pension is made up of two parts:

• The basic state pension, and
• Additional state pension, sometimes referred to as state second pension or SERPS (State Earnings-Related Pension Scheme).

If you are, or were, in what is known as a defined benefit company pension scheme – where what you're paid in retirement is a set proportion of your final salary – you're likely to have been 'contracted out' of the additional state pension.

In a nutshell, it meant workers paid a lower rate of NI contributions. This was because – in return – they will have paid this extra cash into their workplace scheme, or had it paid in for them by their employer. Millions of workers with company pensions in the public and private sector are affected. Some stakeholder- and personal-pension schemes have also been contracted out.

You need 35 FULL years to qualify for a £164.35 pension...

This means you won't get £164.35 despite having what you thought were 35 years of NI contribution. What counts is 35 years of full contributions – not ones where you paid a lower NI rate.

To this end, the Government has decided it will deduct a sum from your new state pension – the equivalent of what you missed out on by being contracted out. It says that, while you'll get less than the full £164.35, retirees will still be paid what they would have got under the old state pension.

The sum is what the Government has coined your 'contracted out pension equivalent' (COPE) amount. If you ask for a state pension statement from the Government it will include this amount.

However, while many people will get a private pension boost equivalent to this deduction, it could be a lot less than the state pension they gave up – much depends on the company scheme and investment performance. To make matters worse, many workers won't even have realised they were contracted out, so will learn of their lower pension as a shock.

Quick questions