With radical changes to the State Pension introduced in April this year, it is understandable that many of our clients have no idea what they are entitled to.
So to bring you up to date, here’s how the new State Pension works.
On 6 April 2016, the rules changed for men born on or after 6 April 1951, and for women born on or after 6 April 1953.
If you reached the State Pension age before 6 April 2016, these changes won’t affect you, and you will continue to receive the basic State Pension (£119.30 a week), plus any additional State Pension you are entitled to.
With the change, the Government introduced a “single-tier” State Pension with a “full level” – we’ll explain what this means later – of £155.65 per week – or £8,092 per year.
They also increased the number of years an employee must work to receive the upper level – from 30 years to 35.
To work out at what age you will receive your State Pension, use this handy tool (you’ll also be able to find out at what age you qualify for a free bus pass!). https://www.gov.uk/state-pension-age
Meanwhile, the previous system, where you could opt in or out to pay full National Insurance Contributions (NICs) to receive additional State Pension, was scrapped.
The “full level” is what you will receive should you fulfil the Government’s requirements – 35 years of active NICs. To receive any pension at all, you must have worked and contributed for at least 10 years.
However, the Department for Work and Pensions (DWP) will take into account the years spent paying full NICS under the old system and thereby building up additional State Pension.
You will get whichever is higher – the amount you would have got on the last day of the old system, or the amount you would get had the new system been in place throughout the whole of your working life.
According to Government estimates, around half of those retiring over the next year will qualify for the “full level” State Pension.
For workers who chose to opt out of paying full NICs, you can pay voluntary contributions to fill in the gaps or time period where National Insurance was not paid in full.
You can also defer your State Pension. You can do this by delaying the age in which you take your pension.
And up until 5 April 2017, workers can also apply for the State Pension top up. This lets you add up to £25 per week to your pension in exchange for a lump sum payment.
If you are planning for retirement or planning your business exit strategy, our Lifestyle team can advise on the options available to you which can help minimise your tax liabilities whilst protecting your wealth and assets.