New State Pension

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 how many you get generally depends on how many years you're in work.

You can also build them up as NI credits for time spent raising a family, if you care for someone who is sick or has a disability, or have been 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 payment at all. Reach this and you'll be paid 10/35ths of the total – currently £168.60 – which is about £48 a week. 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 meet this 10-year minimum, you won't get a penny (although pension credit should be available). Under the old system, there was no minimum – you could still get a small payout even if you had just a few years of NI contributions.

To get the full £168.60

You'll need 35 years to get the full £168.60 rate (which itself rises 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 qualifying years earned before this date will count along with subsequent years.

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 (also called the second state pension, S2P, or SERPS) – 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 their existing entitlement.

This is 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.

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 £168.60 payout, or about £111.

As a guide to what you might get, multiply the number of years you've got by £4.80 – this figure is what each qualifying year is roughly worth.

There's a potential catch, though. Some years in which you paid NI don't count when working out how much you're entitled to because they're not deemed 'full' years. This could mean you end up with less than you imagined (see 'contracting out' below).

Quick question

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

Contracting out isn't simple...

Under the old system, the state pension was 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 a defined benefit company pension scheme – where the amount 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 would 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 sectors are affected. Many individuals also contracted out through personal pensions. 

You need 35 FULL years to qualify for a £168.60 pension...

This means you won't get £168.60 despite having what you thought were 35 years of NI contributions. What counts is 35 years of full contributions – not ones where you paid a lower NI rate.

To this end, the Government will deduct a sum from your new state pension. It says that although you'll get less than the full £168.60, 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 which offsets this deduction, it could be less than the state pension they gave up – much depends on the pension 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