In April this year the state pension system is changing. It’s designed to be clearer and fairer, yet it has provoked some confusion. Do you know how the new state pension will affect you?
The full new state pension will be £155.65 per week (replacing the current combination of basic state pension and additional state pension) but, in reality, very few people will receive this amount.
The Government has guaranteed that nobody will get less for contributions they’ve already made than they would have done under the old rules. If you retire after 6 April 2016, and your entitlement is more than the new state pension, you’ll still get the higher amount. If you’ve been contracted out at any time during your working life, your pension entitlement will be reduced however, in some cases quite considerably.
If you’ve yet to retire, you can request a pension statement from the Department of Work and Pensions (DWP) to find out how much you’ve built up so far. This shows how much has been deducted for contracting out, but gives few further details.
In 2016 the DWP will launch a new online service which shows your contributions to date, an estimate of what you can expect at state pension age if you continue to contribute, and personalised information about what you can do to boost your state pension.
My state pension
I applied for my state pension statement last summer, but have to admit it left me with more questions than answers…
I’ve worked for three different companies – Macmillian Publishers for seven years from 1979, the books department of Express Newspapers for 12 years and Which? for nearly 14 years. I’ve also had spells of freelancing.
I was always in final salary pension schemes at work, and was contracted out for some of the time at the Express, but I don’t know exactly when. My statement told me I had 38 qualifying years and gave me an estimate of £144.12 a week. This is less than the full rate of the new state pension but, as the statement said, a deduction had been made because I’d been contracted out at some point.
Reaching state pension age
It’s hard to know what sort of impact contracting in and out across the years will have on my eventual state pension. My statement didn’t tell me the period for which I was contracted out, or how the deduction was calculated. I’ve already clocked up 35 qualifying years but I don’t reach state pension age until I’m 66 (in 2023), so I could be working for seven years under the new system. I honestly don’t know whether my accrued benefits under the old system are higher than under the new one.
Has anyone else requested a statement to see what they might end up with? Will the new system make much difference in the long run, or are the changes less of a big deal than they first appear?
If you’ve already retired, do you feel you’ve missed out? Might you be tempted to pay in extra national insurance (Class 3A) now in order to get more? Does additional state pension give you more than the new pension anyway?