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What Changes Does the New Pensions System Bring?

20/06/2016 09:58 am

The new State Pension came into effect this year. As changes have an impact to every worker in the UK, we address the most important facts about the new rules in the new Right Accounts blog post.

Key facts

  • The new rules apply to you if you reached the State Pension age on 2016 April 6 or it will happen later. If you reached the State Pension age earlier, your pension will be calculated under the old rules.
  • The new rules will be applied to men born on 1951 April 6 or later, and women, born on 1953 April 6 or later.
  • The new State Pension rules are based on the fixed tariff.
  • The new full State Pension is £155,65 p/w. In comparison, it was £120 p/w under the old rules.
  • You are eligible for the State Pension even if you have other income.
  • The amount of the pension that you will get, vary depending on your National Insurance contributions.
  • If you lived and worked abroad, you can also claim the State Pension.

How is the State Pension Calculated Under the New Rules?

The State Pension is calculated based on your National Insurance contributions. You are eligible for the pension even if you have gaps in in your National Insurance contributions, which means that you did not pay the contributions at certain time of your life.

After 5 April 2016, each qualifying year when you paid your National Insurance contributions, will add around £4,44 p/w to your new State Pension.

  • Under the new rules, in order to get the State Pension at all, you have to have a record of 10 qualifying years of National Insurance contributions.
  • In order to get the full State Pension, you have to have a record of 35 qualifying years of National Insurance contributions.

If you are getting National Insurance credits for unemployment or sickness as well as if you are paying voluntary National Insurance contributions, this time adds up to the required 10 qualifying years.

In comparison, under the new old rules, there was no rule for minimum qualifying years of National Insurance contributions and you had to have a record of 30, instead of 35, qualifying years of National Insurance contributions to get the full State Pension.

The Full State Pension

Smaller Than the Full State Pension

Under the old rules, it was possible to make contributions for the State Pension as well as to the Additional State Pension. Some employees chose to pay lower National Insurance contributions and contribute to other pension schemes instead. In other words, they were ‘contracted out’ of the Additional State Pension and, as a result, will get a smaller than the full State Pension. The amount of their Pension will depend on for how long they were ‘contracted out’.

This will mostly affect people who work in the public sector, e.g. the NHS, police, armed forces, teaching, local councils, etc.

Starting this year, the rules change and workers, who have previously before been ‘contracted out’, will no longer be ‘contracted out’ and will pay bigger National Insurance contributions.

Bigger Than the Full State Pension

Some people will be able to get bigger than the full State Pension. It is the case for people who have been contributing for the Additional State Pension. Even though the Additional State Pension has been removed this year, the Government allows many workers to keep the amassed amount.

The amount of the pension the person will get, depends on the calculation of the starting sum. The comparison will be made of what the person has been entitled to under the old and new rules and will be paid the higher amount of the two.