The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
If you’re a man born after 6th April 1951 or a woman born after 6th April 1953 then you are, or will be, receiving the state pension under the rules introduced in April 2016. Admittedly the younger you are, the likelier it is that these rules could be changed before you reach pension age, but for now here is a quick guide to what to expect from the new state pension.
Payments are still based on NI contributions, but, in principle, only contributions from the claimant
Under the old system, married women were able to pay a reduced rate of NI contributions. This right stopped in 1977, but those who had already opted in were allowed to continue to pay the lower rate. This means that women aged in their mid-fifties or older could still be paying the pre-1977 rate, possibly having forgotten that they chose to do this in the first place. Women in this situation may wish to seek professional advice or at least contact an organisation such as The Pensions Advisory Service since you may be able to increase your level of State Pension based on your husband’s NI contributions, but there is a complex set of rules around this.
Payments are based on NI contributions alone, the Additional State Pension has ceased to exist
Those who have already paid extra contributions towards an increased state pension will find these contributions honoured but the level of extra payment they will receive will depend on various factors. Likewise those who opted out of the additional state pension may find that they receive less state pension than they expected. Again, the rules governing this transition are somewhat complex and so it may be worth speaking to a professional or other competent adviser.
The NI clock was reset on April 6th 2016
Basically for state pension purposes, your NI contributions prior to this date were converted into a “starting amount”, which should be at least equal to what you would have received under the old system. If your starting amount is higher than the full new state pension, you will receive the payment you have already accrued but will not be able to continue to increase your pension by making further contributions. If it is the exact same as the full amount of the new state pension then your pension will be frozen at its current level. If it is less, you may be able to make up the difference so that you receive the full state pension, for example by paying extra, voluntary, NI contributions.
You need 10 years’ worth of payments to qualify for the new state pension and 35 years’ of payments to receive the full amount.
Anything in between this will see your state pension increased on a pro-rata basis. Again, if you are worried about having less than you expected, you may be able to increase the amount of new state pension you receive by paying extra, voluntary, NI contributions.
If you have lived and worked overseas then it may be possible to use the NI contributions you made abroad as part of the qualifying period for the UK new state pension. This would typically apply in the EEA/Switzerland, the Channel Islands/Isle of Man and the U.S.A as well as a handful of other countries with reciprocal arrangements with the UK. The actual payment you receive would, however, still usually be based on your UK contributions. For example if you worked for 10 years in the U.S.A. and 5 in the UK, then your 10 years’ of U.S. contributions would see you qualify for the new state pension, but the payment would be based on your 5 years of UK contributions.
Deferment is still possible, albeit less attractive
Under the old system, for each year you deferred your state pension, it was increased by 10.4%. The new state pension offers a much less generous 5.8%. Additionally the government has withdrawn the option to take your deferred pension as a lump sum.