For many people, the State Pension provides a base level of income; which is nice enough, even if you wouldn’t want to live on it exclusively.
However, in our experience as financial planners, people are often confused about how much they will get, usually underestimating the amount, and when they will receive it.
In the first of a series of articles on the State Pension, we try and answer these questions.
The new State Pension (sometimes referred to as the flat rate State Pension) was announced with a great flourish. However, it introduced another tier to an already complex system.
You will be eligible for the new State Pension if you are:
To qualify for a full new State Pension, you need to have paid National Insurance and been credited with a qualifying year for at least 35 years. If you have paid National Insurance for a shorter period:
If you are employed, you get a qualifying year if you get paid £157 or more per week from one employer.
If you are self-employed, you will get a qualifying year if you pay Class 2 or Class 4 National Insurance contributions.
If you don’t work, you may be able to claim National Insurance credits. These apply if you:
If you have gaps in your National Insurance record you may be able to pay voluntary contributions to fill them.
You can get a Government Gateway account and check if you have any gaps by clicking here . This calculator will also tell you how much it will cost you to fill any gaps.
You can claim it from your State Pension age. Again, numerous changes have been made to this over the years. You can confirm your State Pension age by clicking here to use this simple online calculator.
You need to claim your State Pension; it isn’t paid automatically. Around four months before your State Pension age you should receive a letter telling you what to do, which will include the four ways to claim:
You can also choose to defer your State Pension to a later date, which will increase your weekly pension when you come to claim it. There are advantages and disadvantages for deferring, which we will discuss in a future article.
Currently, that’s a question without a simple answer. The exact amount you will get depends on several factors, including:
Over time, the new State Pension will be simpler than the current system. However, during the transitional period things will become more complex, and not everyone will receive the full £159.55 per week.
If you paid National Insurance before the 6th April 2016 these contributions will be used to calculate your ‘starting amount’, which is part of your new State Pension. A deduction may be made if you had previously opted out of the Additional State Pension.
Each year you pay National Insurance contributions after April 2016 will help build up further credit towards the new State Pension.
If you didn’t pay National Insurance before April 2016 your State Pension entitlement will be calculated entirely on the new rules. That means you will need to pay National Insurance for 35 years (these don’t have to be consecutive) to get a full new State Pension, and at least 10 years to get anything.
You can use the government’s online calculator to get a forecast of your State Pension entitlement as well as finding out when you will start to receive it.
The calculator can be found by clicking here and is the only accurate way of understanding what you will get and when.
If the figure you’ve been given isn’t enough, or you don’t want to have to wait until your State Retirement Age to finish work, you need to make alternative arrangements.
Your State Pension is still a valuable asset, and will play an important role in your retirement planning; it just might not be enough to allow you to retire on your terms, on an income and at a time of your choosing.
That’s where we, as financial planners, can help.
We will calculate the amount you need to pay for your chosen lifestyle in retirement, and then produce a plan, considering your existing pensions, savings and investments, to achieve your objectives. We’ll then review the plan to make sure it isn’t blown off course by changes to your circumstances, or other events outside of your control.
If you don’t want to rely on the State Pension for your income in retirement, or wait until your late 60s to retire, you need to take action. Call us on 0116 240 7070 and ask to speak to one of our financial planners based in Leicester.
The content of this article is based on our understanding of the current State Pension operation (October 2017), which is subject to change. Any information given should not be construed as Financial Advice or specific guidance. If you require specific advice relating to your personal circumstances please contact us.
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