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For those reaching state pension age on or after April 6 2016
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The state pension underwent a huge change in 2016. While the Government's aim was to make it fairer for all and easier to understand retirement income, it's still a minefield for most – and some have also lost out with the overhaul.
This guide helps you understand the 'flat-rate' state pension which came into force on 6 April 2016 for those reaching their state pension age on or after this date.
This is the first incarnation of this guide. Please suggest any changes or questions in the New State Pension discussion. Thanks to Alan Higham formerly of PensionsChamp and Danny Cox of Hargreaves Lansdown for fact-checking and their help putting the guide together.
What is the state pension now?
A brand-new state pension was ushered in on 6 April 2016 as a result of a massive shake-up. The payout was designed to make the whole process easier to understand though it's still far from simple.
However, it only applies to those reaching state pension age on or after 6 April. This means millions of older people have been unaffected and have simply carried on receiving their state pension under the old system.
Here are the key differences at a glance (and remember there's no married couples pension – it's the sum of each partner's payout)...| Old state pension | New state pension | |
|---|---|---|
| How it's made up | 2 parts: basic pension + additional pension | 1 flat rate payment + any 'protected payments' |
| Maximum weekly payout | £125.95 basic (+ avg £40 additional) | £164.35 + any 'protected payments' |
| NI years needed for full rate | 30 | 35 |
| NI years to qualify for min payment | Any | 10 |
When will it be paid to me?
Stop Press: The Department for Work and Pensions has announced plans to bring forward a change to the retirement age which will affect millions of people in their early-40s.
The change – affecting everyone born between 6 April 1970 and 5 April 1978 – proposes to increase the state pension age to 68 between 2037 and 2039, rather than between 2044 and 2046.
Any changes will have to go through Parliament before they are confirmed, and there will be another review before then to ensure the Government has the latest life expectancy figures. We will update this guide when we know more.
Just as under the old system, you receive the new state pension when you reach the Government's official retirement age. But what that is depends on when you were born and your gender.
To save the state money, the official retirement age is gradually being raised. While many women currently get the state pension at age 63 and men at age 65, the thresholds are moving up. They will rise to at least 66 for both by 2020, and possibly to 68 in the 2030s.
The rising age for women has triggered much controversy. Campaign group WASPI – Women Against State Pension Inequality – has fought against the pace of change in women's state pension age.
It argues that the speed of this rise has caught millions unawares and says the Government has not properly communicated the changes to them, whether by post, online or by advertising. However, the Government has so far refused to change the speed of the age rises, or make any concessions.
The state pension age for men and women
| Born | Official retirement age | |
|---|---|---|
| Men | Before 6 December 1953 | 65 |
| On or after 6 December 1953 | Rises from 65 to 66 between December 2018 and April 2020. | |
| Women | Before 6 April 1950 | 60 |
| On or after 6 April 1950 | Rises from 60 to 66 between April 2010 and April 2020. |
To find your exact retirement age see the Government's State Pension Age Calculator.
How to claim it
It might feel like an official life milestone but you won't get your state pension automatically – it's up to you to claim it. Four months before you reach your state pension age – currently 65 for men, 63 for women – you should get a letter from the Government's Pension Service telling you what to do.
If you still haven't got a letter three months before your state pension age, call the telephone claim line where staff will be able to discuss with you what you need to do.
You've three ways to claim: online by filling in a claims form on-screen; over the phone by calling 0800 731 7898; or by downloading a claim form at Gov.uk, printing it off and sending it to your local pension centre whose address can found on the Government website.
How much state pension will I get?
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
How can I find out how much state pension I'm on track for?
You can get an estimate of your state pension based on your current NI record by going online. Remember this is only an estimate however, and what you actually receive when you retire may be different, especially if the pension system changes again in future.
What are NI years – and how do I find out how many I've got?
To gain a qualifying year, you need to earn a set minimum amount of money during a tax year (6 April to 5 April) – and pay the required NI contributions. For 2018/19, these minimums are:
- £116/wk, £503/mth, £6,032/yr for employees
- £129/wk, £517/mth, £6,205/yr for the self-employed
In past years, the amount was lower. But it has always been a similar figure in relation to average salaries. So only those on very low wages could have missed out.
If you were working full time, even on the minimum wage, or even just a few days a week throughout the year, it's likely you earned a qualifying year. Just to reiterate, these qualifying years can be from before or after 6 Apr 2016 and don't have to be 10 years in a row – they can be dotted about over a much longer period.
Remember, you'll need at least 10 to qualify for any payout at all.
Does it matter if I don't have a job?
If you're unable to work – for example due to long-term illness or you're caring for someone – you may be able to get NI credits. With some benefits, such as child benefit for a child under 12, jobseeker's allowance, and employment and support allowance, you get NI credits automatically.
There are some instances where it isn't done automatically and you have to apply; for example if you care for someone for at least 20 hours a week, you may be able to apply for carer's credit.
You can check if you're eligible for credits, but you need to wait until the tax year – which runs from 6 April to 5 April – is over before you can apply for credits for the previous 12 months.
Where can I check how many NI years I have?
HMRC regularly writes to people where a gap appears in NI contributions, so if you've had one of these letters it's quite possible you've been affected by this. First, ensure you check whether you actually worked during these years.
If you haven't had such a letter and want to check your situation, you can go to the Government's website or call its national insurance helpline on 0300 200 3500.
Ask it:
Which years have you got me down as paying national insurance?
Those NI contributions or credits on your record under the old state pension will still count towards your new state pension – you don't have to start from scratch with your contributions under the new system. For more on NI contributions, see the Q&As below.
Why 'contracting out' will cut your state pension payout
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
Why did 'contracting out' happen?
So-called 'contracting out' saw staff agree to give up their right to additional state pension.
The idea was that in return for doing so, you (and your employer) would pay a lower level of NI, giving you a bigger pay packet.
On top of this, your private pension provider would then boost your retirement fund with an extra bit of cash.
Behind it all lay a desire to cut the State's pension bill.
If it could persuade workers to give up their right to the additional state pension – the actual act of 'contracting out' – the Government could make huge savings and let private companies take on the strain instead.
In theory, the worker would benefit from having the extra cash invested in the stock market which then went towards paying you an income when you eventually retire.
How do I know if I've been contracted out?
You may have to dig out old pay slips or P60s. If you were contracted out via a personal pension, you'll need to get your pension provider to confirm. You can check with your pension provider if you've been contracted out in the past. The Pension Tracing Service may be able to find your pension providers' details if you've lost contact with them.
You're more likely to be contracted out if you work in public sector organisations and professions such as:
- The NHS
- Councils
- Fire service
- Civil service
- Police forces
- Armed forces
- Teaching
It also means those people who have been contracted out will now pay more NI at the standard amount, as will their employer, which may well pass its extra costs onto the employee too – this could take the shape of either higher scheme pension contributions, or a reduction in the scheme pension for the future.
How can I boost my state pension?
Regardless whether you're under the old or new state pension system, there are ways you can boost the amount of state pension you'll receive. However, they need to be considered carefully before deciding what to do.
Defer your state pension
You can put off claiming your basic state pension. This can be especially useful if you're still working, as it means you'll get larger pension payments later. You can also defer receiving payments once you've already started claiming, though be careful as you can only do this once.
How much can I get?
Government rules say that for every nine weeks you defer taking your state pension, your payout will rise by 1%. So if you hold off taking your state pension for 12 months, it works out as a 5.8% boost for every full year. This extra amount is paid with your regular state pension payment.
For example, defer the £164.35 flat rate for one year, and you'll get an extra £495 a year. Here's how it can work.
Bernard's due a £7,000/year state pension (he's at the full state pension rate, plus he has some second state pension). He reached state pension age after 6 April 2016. He decides he can afford to defer his state pension for one year. He gets an increase of 5.8% for each full year he deferred, meaning his yearly pension increases to £7,406 (or an extra £7.80 per week).
Buy 'extra' pension years
If you've got spare savings and can afford to be without the cash in the short-term, it's possible to replace some missing NI qualifying years – up to £741 for each gap year.
This could lead to a big increase in your basic state pension payout over your retirement.
In a nutshell, you pay a one-off lump sum to buy a higher state pension sum. Assuming you live long enough, this extra cash you earn from a bigger weekly state pension could be worth £1,000s over a lifetime.
The key that defines whether it's worth bothering is how many NI years you already have. HMRC should send notices to people with NI gaps and is developing a website where you will be able to log on and see for yourself.
If you haven't received one or can't find it, don't worry. You can check whether you have any gaps online by getting a state pension statement or calling the Future Pension Centre on 0845 3000 168 and it'll send you a statement.
Quick questions
How many years can you buy?
If you're eligible, and you could benefit by boosting, it's time to get serious on the nitty-gritty. When buying extra years, you have to buy what are called 'class 3 NI contributions'.
Those retiring after 6 April 2016 can buy up to 10 years' contributions. See the table below for prices...
Cost of buying additional NI years
| NI Year | Cost to buy now |
|---|---|
| 2011/12 or before | £689 |
| 2013/14 | £705 |
| 2014/15 | £723 |
| 2015/16 | £733 |
| 2016/17 | £741 |
| 2017/18 | £741 |
| Rounded to nearest pound. Source: HMRC | |
Could you be excluded from buying NI years?
There are some who may not be able to, or shouldn't, buy additional years.
-
Paid reduced NI? Married women sometimes paid less NI (known as the 'small stamp' or 'married woman's stamp') in return for some maternity benefits. But those who signed up to this can't replace any missing years where they paid reduced NI for the whole year.
-
Already at the maximum number of years? If you try to buy further years that would take you over the maximum number of years allowed, you'll normally be prevented from doing so by the Government.
What should I consider to see if it's worth it?
State pensions are incredibly complex, and it's not easy to calculate whether you'll be better off buying extra years or not.
You'll need to do a lot of research to work out if it's really worth your while.
Much will depend on various factors: how many existing years you already have; whether you can afford to give up the cash needed to buy the extra years; and make a judgment on your health (i.e. are you likely to live long enough to make it worthwhile?)
We've a simple table to give you a rough idea of what to expect. However, everyone's circumstances are different so the figures are only an indication. As a general rule of thumb, each year you buy will boost your pension by up to £230/yr.
| No of missing years bought | Annual boost to you | Cost | Yrs to break even |
|---|---|---|---|
| 5 | £1,156 | £3,445 | 2yrs 11mths |
| 10 | £2,312 | £7,576 | 3yrs 2mths |
Check if you can get pension credit before paying extra
If you don't have enough money to buy additional NI years to get the full state pension, your payout may be boosted if you apply for pension credit.
Pension credit is an income-related benefit for low earners who do not qualify for the full basic flat-rate of £164.35 a week. All your money, including savings, will be assessed, and if you don't have enough to buy extra NI years you'll be topped up to the full basic state pension amount of £164.35.
If you're eligible for pension credit you'll still be entitled to other benefits such as housing benefit. See the Pension Credit guide for full information.
New state pension Q&A
-
Why did the state pension change?
The Government said the old equivalent was too expensive to keep offering to new pensioners, hard to understand and unfairly biased against many – notably women – who took time off work to care for others or raise a family.
For years, this has made it hugely difficult to work out how much you'll get – and therefore more tricky to plan your retirement finances.
Problems lie in the old system being made up of two parts: a 'basic' state pension (worked out according to your number of national insurance years) and a 'second state pension' also known as S2P, Serps or the Additional Rate.
While the first part was simple enough, the latter caused huge problems with its complexity – particularly when workers opted out of it (knowingly or otherwise) in a process called 'contracting out' which has left many out of pocket.
The new payout was designed to make the whole process easier to understand though it's still far from simple.
The new set-up is also a huge boost for the self-employed who lost out hugely under the old system since they were unable to build up any second state pension.
Under the old rules if you were self-employed you weren't included in the additional pension, so the most you could get was £122.30, now you can get £164.35 – a massive boost.
However, it's only for those who reach state pension age on or after 6 April. This means millions of older people will be unaffected and carry on receiving their state pension under the old system at the same time as the new one is ushered in.So to make things easier we've two guides – one for the new pension and one for the old. If you're already receiving your state pension under the current system there's no change for you.
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If I've got more than 35 qualifying NI years, does this mean I'll get more than the full flat-rate state pension?
No. Having more than 35 qualifying NI years doesn't boost how much state pension you receive. The only way you may get more is if your 'starting sum' under the new rules is higher than the maximum £164.35 pension.
At the same time, if your starting sum is lower than the new £164.35 rate, you can continue to earn extra NI years from April 6 2017 to build up your state pension until you reach retirement age or reach the £164.35 maximum – whichever comes first.
-
I'm self-employed; does it work differently for me?
Yes and No. Under the flat-rate state pension, class 2 NI contributions made by self-employed people who make a profit above £6,205 (in 2018/19), and class 2 and class 4 NI contributions for those with a profit above £8,424 (in 2018/19), will be treated the same as employee contributions and count toward the new state pension in the same way. This will include any contributions made before 6 April 2016.
Self-employed people are the big winners in the new state pension. Under the old rules if you were self-employed you weren't included in the additional pension, so the most you could get was £125.95, now you can get £164.35 – a massive boost.
-
Can I claim my new state pension when I'm abroad?
Yes. You can, as long as you've paid enough UK national insurance (minimum 10 years) to qualify. If you've paid into a social security system overseas that has a dual agreement with the UK, or is in the EU, then those years can count toward the 10 years.
For example, if you have five years in the UK and five years in Portugal, then you'd get 5/35ths of the UK state pension. This is because the two periods combine to give 10 years, which meets the qualification, but only the five years in the UK actually count toward the amount. If you're unsure how many years you have you can ask for a state pension statement.
To claim you need to be within four months and four days of your state pension age. You'll also need to contact the International Pension Centre. If you live part of the year abroad you have to choose which country you want your pension to be paid in. You can't be paid in one country for part of the year and another for the rest of the year.You'll be paid in local currency – the amount you get may change due to exchange rates – and you can choose to be paid every four or 13 weeks. If your state pension is under £5 per week, you'll be paid once a year in December.
It's also worth noting, if you live abroad in certain countries your UK state pension will be frozen, so there are no increases.
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I didn't make any NI contributions before April 2016, what does that mean for me?
Your state pension will be calculated entirely under the new state pension rules. This is more likely to affect you if you were born after the year 2000, or became a resident of the UK after 2015.
-
Will the maximum flat-rate £164.35 payout rise each year in line with inflation?
Yes. Like the old state pension, the headline rate will rise with the so-called triple lock.
This goes up every April by the biggest of the following: inflation in the previous September (using the Consumer Prices Index), the increase in average earnings, or 2.5%.
For those who will receive more than the £164.35 rate, the extra 'protected' income is to rise only by inflation.
-
Can I inherit my spouse or civil partner's pension when they die?
Although your entitlement to the new state pension is based on your national insurance contributions alone, there are some circumstances where you can inherit parts of your spouse or civil partner's pension. What you get will depend on different factors, such as:
- - The number of years they've paid national insurance. Essentially, the longer they've worked, the more you're likely to get, as there's the potential they have accrued more.
- - Whether your deceased spouse or civil partner had any additional state pension, protected payment, state pension top-up or 'graduated retirement benefit' (the earnings-related state pension people could build up between 1961 and 1975). If so, you could get more as there's more to pass on.
It's very complex to work out exactly how much you're entitled to. The best way to find out is via the Department for Work and Pensions' online tool which allows you to see what you may get if your spouse or civil partner dies, based on your own circumstances.
If you reached state pension age and got married before 6 April 2016 and are therefore receiving your state pension under the old pension rules, it's different. See our Old state pension guide for more.