The basic state pension is a regular payment from the government, which you receive when you reach state pension age if you have paid or been credited with sufficient national insurance contributions
In April 2016 the government introduced a flat rate (single-tier) State Pension for everyone who reached their state pension age on or after that date. They also changed the timetable that raises the State Pension Age (SPA) from 66 to 67 gradually between 2026 and 2028. Under the current law SPA will already increase to:
- 67 between 2034 and 2036
- 68 between 2044 and 2046
As part of this change to the state pension, the Government ended National Insurance Contracting out arrangements. This meant that members of what were known as “contracted out pension schemes”, like the NHS pension, now pay on average 1.4% more in NI than they used to (employers will also pay more for their affected employees). The reason for this is that there is no longer a second element to the state pension that people in contracted out schemes previously didn’t pay into (e.g. SERPS and the State Second Pension).
When someone claims their state pension, the Department for Work and Pensions (DWP) works out a 'starting amount' (the amount of State Pension the member will be deemed to have earned up to 6 April 2016) and adds this to the contribution history they have built up since the change took place.
This "starting amount" will be the better of the state pension:
- an individual has already built up under the old rules or
- the individual would have built up by 6 April 2016 had the new rules applied for their whole career to date.
In both cases, a deduction will be made to reflect any periods when the individual was contracted-out of the additional state pension. This will then be added to by any further years of NI contributions until the pension is claimed.
To help individuals understand how this will affect them, the DWP can provide a written estimate of the starting amount on request. This service is available to anyone over the age of 55. A State Pension estimate can be requested by phone on 0845 3000 168 or by completing form BR19 available here.
The DWP has also released some more general information on the changes. This includes a number of videos branded the “PensionTube” and factsheets.
DWP’s own figures show that the majority of people reaching state pension age after 2016 will be worse off under this new arrangement, so it is vitally important that members seek information about their future income so they can make plans accordingly.