State pensioners may see sum affected if they have a workplace or personal pension

Financial expert explains changes to the state pension

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The state pension is a vital payment for millions of older Britons across the country. Consequently, many people will want to understand what they will receive and the reason for this.

The way the state pension works means the amount is usually based on a person’s National Insurance contributions.

However, what some people are unaware of is that there are state pension rules which apply if a person made these contributions before April 6, 2016.

National Insurance contributions before this date are used to calculate a person’s “starting amount” – part of their new state pension.

The starting amount is the higher of either:

  • The amount someone would get under the old state pension rules
  • The amount a person would get if the new state pension had been in place at the start of a person’s working life

What Britons should be aware of is that their starting amount may include a deduction in certain circumstances.

This includes if someone was in a workplace, personal or stakeholder pension before April 6, 2012.

It is also true for those in earnings-related pension schemes at work before April 6, 2016.

Those in this kind of arrangement may have paid lower National Insurance contributions and instead put more into one of these pensions instead.

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This is a process known as being “contracted out” of the Additional state pension.

The Government states it will have affected “most people who have been in work”.

Contracting out rules, however, have since changed.

This means if someone was contracted out, on April 6, 2016 this was no longer the case, and individuals will now pay more National Insurance – the standard amount.

However, some people may be unsure as to whether the contracting out matter applies to them.

The Government has issued guidance to help Britons to check their circumstances.

Primarily, payslips are likely to hold the obvious answer to if a person was contracted out.

People were contracted out if their National Insurance contributions line has the letter D or N next to it.

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Alternatively, they were not contracted out if it has the letter A.

The Government website adds: “If there’s a different letter, check with your employer or pension provider.”

If a person wants to get in touch with their old pension provider then the Pension Tracing Service – available through the Government – may be able to help. 

People are more likely to have been contracted out if they worked in the following sectors:

  • The NHS
  • Local councils
  • Fire services
  • The civil service
  • Teaching
  • Polce forces
  • The armed forces.

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