Changes from 6 April
New state pension creates winners and losers
Top-ups and add-ons are being phased out and replaced with one pension for all worth £155.65 a week, against the former £119.35 a week.
On the face of it, this looks like good news.
But as many as three in every four people will not quality for this minimum pension, mainly because they were “contracted out” and paid lower national insurance contributions.
In the main, retirees will need at least 10 years of qualifying National Insurance contributions to get any state pension. To get the full amount they will need 35 years’ worth of National Insurance contributions, against 30 years previously.
Which? found that only 18% of the 1,000 people surveyed knew if they had ever been contracted out of the state pension.
Being contracted out for even a short period of time could leave people with a much smaller pension than they were expecting.
It means many retirees are don’t really know what their entitlement will be and experts fear this latest change will only add to the confusion caused by the pension freedoms introduced last April.
Which? found that many people were unclear on the details of how the new system will work. Some 44% did not know what the full rate of the new state pension will be from 6 April.
Many people will have paid in less than 35 years of NI contributions, because of part-time work or gaps in employment. Others may have contracted out some of their NI contributions to private pension schemes, and so will receive a lower state pension.
Only around half of those retiring over the next year will qualify for the full payment, according to Government estimates.
The Government is introducing an online individual state pension forecast to enable people to check their entitlement.
Existing pensioners are unaffected and will see their basic state payment increase to £119.30 a week, or £6,204 a year.
The big winners from the change are the self-employed and very low-paid workers, without access to earnings-linked top-ups, or those who did not qualify for earnings-linked pensions will benefit from the new flat rate.
The main losers are older women have been caught out both by the ongoing increase in the age at which they can claim, along with a change in the way payouts are calculated.
Women’s state pension age has been rising since April 2010. It will reach 65 in 2018 and 66 by 2020. Between 2026 and 2028 it rises to 67.
It will also be harder for women who gave up work to raise a family to claim a state pension based on their husbands’ NI records, although credit can be received for child-rearing or for being a carer.