What are the changes?
The current state pension, which is made up of a basic flat-rate pension and an additional state pension will be replaced by a single-tier flat-rate pension.
How much will the new pension amount to?
From 6th April 2016, the new pension will be £155.65 per week.
Who do the pension changes apply to?
The new pension arrangements apply to men born on or after 6 April 1951 and women born on or after 6 April 1953.
How do I qualify?
You will normally need at least 10 qualifying years on your National Insurance (NI) record to get any State Pension. This means that for 10 years you either:
- worked and paid NI
- received NI credits or
- paid NI voluntarily
What if I already claim a pension?
The new pension will only affect people reaching pension age from 6 April 2016 onwards. The present system will continue for those who are already pensioners or who reach pension age before 6 April 2016.
Will I get the full amount?
The full single-tier state pension will only be paid to people with a minimum of 35 years NI contributions or credits. Those with between 10 and 34 years of contributions or credits will receive a reduced amount.
Can I acquire extra NI Credits?
You can normally go back a maximum of six years to make up any missed NI contributions by masking voluntary payments, although advice should be sought as to whether the increase in your pension entitlement would make this worthwhile.
What if I “contracted out”?
Contracting out was a system where employees relinquished their additional state pension and paid reduced NI contributions. If you did this your new state pension will be paid at a reduced rate. Under the new pension rules, contracting out will no longer be possible.
What if I am married?
The new state pension will be an individual entitlement, in general terms, and there will be no special arrangements for those who are married, in a civil partnership, divorced or bereaved.
Do I have to take my pension?
It is not mandatory to take your pension. It can be deferred. If you do defer your pension for a minimum of 9 weeks it will increase by 1% for every nine weeks you put off making a claim. This amounts to an increase of around 5.8% for every year you defer.
Can I continue to work?
You can continue to work after your pension is due. You will not have to make any NI contributions on your earnings after you reach your retirement age.
What if I can’t manage on my new pension?
Pension credit and other means-tested benefits will be available to provide a safety net for those who only qualify for a reduced pension. The savings credit element of pension credit will be abolished, however.
What are the changes?
As of 6 April 2015 a new “pension freedom” regime was introduced. As a result, if you have a “Defined Contribution” pension you can withdraw some or all of the money held in a workplace or personal pension. You no longer need to buy an annuity unless you wish to do so.
Will I be taxed on the money I withdraw?
The first 25% of the money you withdraw will be tax free. The entire 25% can be withdrawn at one time or it can be withdrawn in smaller sums over a period of time. If any amount withdrawn over 25% takes you above the income tax threshold for the year in question it will be taxed at the tax rate applicable to you, taking into account all of your other income.
What if I don’t want to withdraw any cash?
If you decide to take a pension drawdown or purchase an annuity without taking a lump sum you will only be charged income tax on the income you draw from the arrangement.
What will happen to my pension pot when I die?
The old “death tax” which levied a charge of 55% against the pension fund of a deceased person has been abolished. If you die before the age of 75, no tax is payable and the entire fund can be passed to your beneficiary. If you die after the age of 75 your beneficiary can draw on the fund subject to paying tax at their normal income tax rate. If the beneficiary wishes to take the pot as a lump sum it will be subject to tax at 45%, although it is planned to reduce this tax liability to the applicable income tax rate by 2016-2017.
There have been a wide range of changes to the state and private pension systems in recent years. These changes will affect all of those retiring after April 2016 in a variety of ways. If you are unsure about exactly how these changes will affect you it is sensible to take independent financial advice, especially before making any significant financial decisions. One source of such independent advice is the Pensions Advisory Service, which offers impartial advice for people with a workplace or private pension.