What is the State Pension and how does it work?

The State Pension is intended to ensure that everyone has a basic amount of money to support them in their old age. The amount you will receive is based on your National Insurance (NI) record and to receive the full basic State Pension you will need to have 35 years’ worth of contributions.

It’s paid every four weeks and can be paid straight into your bank account.

The new State Pension was introduced for everyone reaching state pension age on or after 6th April 2016. It has the following features:

  • It is a single weekly amount. The full amount has been set at £155.65 for 2016/17.
  • However, you may get more or less than this full amount, depending on your individual circumstances.
  • The full amount will be given to people with at least 35 years of National Insurance (NI) contributions or credits (although deductions are made where someone has been contracted out of the Additional State Pension scheme in the past and this can result in less than the full amount being available even if 35 years’ NI contributions have been made).
  • To qualify for any new State Pension, people will need at least 10 years of contributions. Those with between 10 and 34 years of contributions will receive a proportion of the pension.
  • It will be an individual entitlement, so in general there will be no special rules for people who are married or in civil partnerships, bereaved or divorced.
  • Pension Credit and other means-tested benefits will continue to provide a safety net for people with low incomes, but the savings credit element of Pension Credit has been abolished from 6th April 2016 (except for existing claimants).
  • You may get more or less than the full amount of the new State Pension depending on your NI contributions.
  • As most people claiming the new State Pension will have already built up NI contributions under the old system, they will be given a ‘starting amount’. This will be the higher of:
    • the amount they would have received under the old system including basic and additional pension
    • the amount they would get if the new State Pension had been in place at the start of their working life.

When working out the starting amount a deduction will be made if you have been in a ‘contracted out’ personal or workplace pension scheme – for example if you have been a member of a public sector pension. If you were contracted out at some point you will either have paid NI contributions at a lower rate because you were paying into a contracted out pension instead or you will have paid the normal rate of NI with the government then paying a rebate into your private pension plan.

If your starting amount is more than the full amount of the new State Pension, any amount over that level will be protected and paid in addition to the new State Pension when you start to claim it. Any qualifying years you have after 5th April 2016 won’t add more to your State Pension.

If your starting amount is less than the full amount of the new State Pension you may be able to increase your state pension by adding more qualifying years to your NI record after 5th April 2016. You can do this until you reach the full new State Pension amount or reach State Pension age – whichever is first. Each qualifying year on your NI record from 5th April 2016 will add about £4.44 a week (which is £155.65 divided by 35) to your new State Pension.

Remember, to receive any new State Pension you will need a minimum of 10 qualifying years on your NI record.

How it will affect individual entitlement

The State Pension is based on your own contributions and in general you will not be able to claim on your spouse or civil partner’s contributions at retirement or if you are widowed or divorced. However, if you’re widowed you may be able to inherit part of your partner’s additional pension that they built up. There is also provision under the new system for women who paid the reduced rate ‘married woman’s contributions’ to use these contributions towards the new State Pension.

Is there any way I can increase my entitlement?

If you are not on course to receive a full State Pension on your own contributions you may be able to increase your entitlement in a number of ways:

  • If you have not yet reached State Pension age, you may be able to increase your State Pension if you continue to work and pay NI contributions.
  • Paying voluntary NI contributions to increase your entitlement.
  • Seeing if you are eligible (or were previously eligible) for NI credits through various benefits, such as Carer’s Credits.

Deferring your State Pension

You can put off claiming your State Pension when you reach state pension age if you wish to. This will allow you to build up additional benefits which you can take in the form of extra state pension.

If you reached state pension age before 6th April 2016 and have already chosen to defer your state pension you may be able to take the deferred payments as additional pension or as a lump sum (this also applies if you were already in receipt of your state pension before 6th April 2016 – you can choose to stop the payments and defer to a later date – although you can only do this once).

Voluntary National Insurance (NI) contributions

If you reached your state pension age before 6th April 2016 and want to increase your Additional State Pension (ASP) entitlement, you can make voluntary class 3A contributions up to 5th April 2017 which will enable you to increase the ASP by up to a maximum of £25 per week.

If you have gaps in your NI record it is also possible for some people to pay voluntary class 2 or 3 NI contributions in order to increase Basic State Pension entitlement.

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