There are some major changes to the state pension happening in April 2016. The information that is provided below will help you to understand how the changes will affect you and what you can expect in the way of a state pension if you are set to qualify for the pension on or after 6 April 2016.

For many people the state pension forms the base of their income, together with any workplace or personal pension provision that you have.

The new system aims to simplify the process and sees the end of the additional state pension, called state second pension (S2P) and the state earnings related pensions scheme (SERPS).

What changes you are expected to see for the State Pension?

The amount of state pension you get will change in April 2016. The basic and additional state pensions are going to be replaced by a flat-rate state pension, worth around £148 per week in today’s money.

The additional pensions and ‘contracting out’ will be abolished, and so will part of the pension credit. Qualifying National Insurance years will also be increased from 30 to 35 years.

If you reach state pension age before the 6 April 2016 then the changes to the state pension will not affect you. If you are unsure whether this apply’s to you or are concerned you are best to seek some independent financial advice, we at Hutt Professional would be more than happy to offer you a financial adviser would would be able to help.

How much state pension will you get ?

At this current time the current estimate is that the new state pension will be no less than £148.40 per week at 2014/15 values. The figure for the introduction of the new pension in April 2016 will be decided in Autumn 2015. If you would like independent financial advice on how this will effect you we would be more than happy to help, whether this being before or after the figure comes out in Autumn 2015.

Exactly what you’ll get, which is based on your National Insurance record, it will be no less than the amount you’d have received on the last day of the current scheme (5 April 2016). This assumes you have the minimum number of years on your National Insurance record to get any state pension (10 years).

People might get more or less than the indicated full new state pension. Those that have built up a certain amount of additional state pension will get a higher amount, while those that were contracted out before 6 April 2016 for a significant time will probably get less. If you are unsure if this will apply to you then its best you seek independent financial advice to see whether it does or not and also help you prepare your self for the change in 2016.

Contracted out or contracted in?

Contracted out

If you’ve been contracted out, you’ve been making NI contributions at a reduced rate (in a DB scheme), or receiving a rebate into your pension pot (in a DC scheme).

What the new system does is it makes a reduction in the flat-rate pension in the same way a ‘contracted out-deduction’ has been made from your additional state pension under the old system.

If you’ve been contracted out but carry on working for a number of years after 2016, making full-rate NI contributions, you can carry on building up further state pension until you reach the full flat rate.

Contracted in

The new rules that come into place in 2016 will mean that no-one will lose any additional state pension they’ve accrued while contracted in. If you collect your state pension in or after April 2016, the government will make two calculations.

The first will be your state pension entitlement under the current rules. The second will be the amount of state pension you would be entitled to under the new post-2016 rules.

Whichever value is the highest is called your ‘foundation amount’. If this is more than the new maximum flat-rate state pension, you’ll get the higher amount.

If you have any concerns or would like to seek independent financial advice to help prepare your self for the change in 2016 we at Hutt Professional have highly qualified financial advisers with many years of experience who would be more than happy to offer you independent financial advice. If you are located in Leamington Spa or surrounding areas please do not hesitate to contact us.

Source: 03/02/2015