New State Pension: 600 days to go
Today (15 August 2014) marks 600 days until the start of the new State Pension – on 6 April 2016.
The new system will be simpler for people to understand and create a solid base for extra saving – with the full level set above the basic means-test level for pension credit, which in 2014/15 is £148.35.
Women will be among the main winners from the new system – as time they have spent out of the workforce for caring and bringing up children is better recognised.
Some 650,000 women will receive an average of £8 a week more – or around £400 a year – in the first 10 years, from the way their National Insurance contributions (NI) are valued under the transition to the new system.
Around 80% of those reaching State Pension age by the mid-2030s are expected to be in receipt of a full State Pension – and even those who receive less than the full rate, because of insufficient National Insurance contributions, will, in many cases, be better off than they would be today.
Minister for Pensions Steve Webb said:
“The new State Pension will be a much fairer system and is designed to help groups which have traditionally been disadvantaged – including women and the low-paid – to build a strong financial foundation for their retirement.
“In the future, all years spent contributing to society whether through paid work or caring responsibilities will be of equal value.
“We are also helping more women to save for later life. Workers are now being automatically enrolled into workplace pensions – and millions of women will be saving for the first time as a result.
“The new State Pension will be a clear improvement on the current system, removing layers of complexities. It’s part of our work to abolish outdated inequalities and create a fairer society.”
People receiving less than the full rate of the new State Pension may have the opportunity to make voluntary National Insurance contributions in order to maximise their State Pension income in retirement.
Those reaching State Pension age in the first years after the introduction of the reforms will be able to check how much they will be eligible for using a new State Pension Statement service from later this year.
New State Pension facts
What is happening?
The new State Pension starts on 6 April 2016.
Who receives the new State Pension?
People who reach State Pension age after 6 April 2016 will claim the new State Pension. That means women born on or after 6 April 1953 and men born on or after 6 April 1951.
How much is new State Pension?
The full rate of the new State Pension will be set above the means test of the Pension Credit standard minimum guarantee, which in 2014/15 is £148.35 for a single pensioner.
Just like today, your pension will depend on how much National Insurance you have paid – this means some people may not receive the full amount, though they may still be better off than under the current system.
In the first year, around 20% of people will receive a higher State Pension than under the current system and by 2020 around 75% of people will have a higher State Pension.
What is the new State Pension?
The new State Pension will replace the basic State Pension and the additional State Pension and removes the need for the Savings Credit element of Pension Credit for new pensioners.
What other support will there be?
People reaching State Pension age after 6 April 2016 may still be eligible for the Guarantee Credit element of Pension Credit, housing benefit and council tax support.
What support is available for women?
Women are able to earn National Insurance credits towards a full State Pension entitlement if they take time out of work to bring up children.
Around 80% of women reaching State Pension age by the mid 2030s will get the full single-tier pension.
Some 650,000 women will receive an average of £8 a week more – or around £400 a year – in the first 10 years, from the way we value their NI contributions under the transition to the new system.
How can I find out more?
Those reaching State Pension age shortly after April 2016 will be able to check how much they will be eligible for using a new State Pension Statement service from later this year.
Everyone will be able to get an actual starting amount for the new State Pension after the new scheme is introduced in April 2016, and all of their National Insurance contributions and credits up to and including the 2015/16 tax year are held on their NI records.
While the new system is single tier in nature, with everybody contributing towards the same type of State Pension, contributions people have made under the current system will be recognised.
So contributions people have made towards the additional State Pension (also known as SERPS or State Second Pension) will still count, even though it is being phased out.
Where people have opted for an occupational or personal pension in their working lives, and paid reduced National Insurance through ‘contracting out’, this will also be recognised in the transition to the new system.
These transitional arrangements mean that people may receive more or less than the full rate of the new State Pension in the early years, but to ensure fairness everyone’s National Insurance record will keep at least its value at the point the new State Pension is introduced.
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