State pension: How old & new National Insurance rules affect payments – what will you get?

Martin Lewis compares pension annuity against drawdown

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State pension payments can come from either, or a combination of, “basic” and “new” rules. Basic state pensions can be claimed by men born before April 6 1951 or women born before April 6 1953, whereas the new state pension can be claimed by those born on or after these dates.

Of course, many people will likely build up their state pensions through both rules during their working life, with the basic state pension needing 30 years of NI contributions for the full amount of £134.25 while the new state pension needs 35 for £175.20 per week.

For those who will receive the new state pension, their NI record before April 6 2016 (when the new system was introduced) is used to calculate a “starting amount”.

This will be part of the new state pension and the starting amount will be the higher of either:

  • The amount they would get under the old State Pension rules (which includes basic state pension and additional state pension)
  • The amount they would get if the new state pension had been in place at the start of their working life

The starting amount will include a deduction if the claimant was “contracted out” of the additional state pension during their working life, which could have occurred if they were in certain types of workplace, personal or stakeholder personal pensions.

A starting amount can be less or more than the new full state pension and fortunately, claimants have options for both circumstances.

If starting amounts are less than the full new state pension

Claimants may be able to add more qualifying years to their NI record after April 5 2016 and this can be done until they reach the full new state pension amount or state pension age, whichever comes first.

Each qualifying year on an NI record after April 5 2016 will add about £5 a week to a new state pension.

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The exact amount awarded is calculated by dividing £175.20 by 35 and then multiplying by the number of qualifying years after April 5 2016.

If a starting amount is more than the full new state pension

The part of a starting amount which is above the full new state pension is called a “protected payment”.

This will be paid on top of the full new state pension.

The Government notes any qualifying years a person has after April 5 2016 will not add more to a state pension.

Under the current rules, a qualifying year will be generated where a person is working and paying NI through:

  • Employment where they’re earning over £183 a week from one employer
  • Self-employment where they’re paying NI contributions overall

It is also possible to receive qualifying years if a person is not working through NI credits.

These credits can be awarded to those who cannot work because of elements such as having an illness or disability, being a carer or being unemployed.

NI credits can be awarded to those who are receiving certain state benefits such as child benefit, jobseeker’s allowance or carer’s allowance.

The Government will allow people to check on their NI records on their website to see if there’s any gaps.

Regardless of how much a person receives from their state pension, they’ll only be able to claim it when they reach state pension age.

Currently, the state pension age is sitting at 66 for most people.

It is gradually being increased and by 2048, the state pension age will rise to 68.

When a person is ready to claim a state pension, they’ll be able to claim it online, over the phone or through the post.

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