Over half of the UK population unaware of government plans

Over half of the UK population are unaware of government plans to reform the State Pension and the impact that will have on them, according to recent research[1]. Among the 55 to 64-year-old age group, 32% are unaware of the changes due to come into effect in April 2016.

 

Underestimating State Pension values

Although most of the respondents underestimated the value of their State Pension and admitted to not knowing the details of the reforms, two thirds of men and women regard it as important to their retirement income planning.

Of those surveyed, just under half of 55 to 64-year-olds were unsure as to whether or not they would be better off under the new State Pension system compared to the current one.

Key part of government reforms

The flat rate State Pension is a key part of government reforms to the UK’s retirement planning and will benefit savers by demonstrating the value of pension saving. But just under half of those aged between 55 and 64 who are about to retire have no understanding of whether or not they will be better off.

Women are more likely not to know the detail of the flat rate pension reforms – which require people to have worked and paid National Insurance contributions for 35 years – than men. Around 57% of women admitted to not knowing the details, compared with 43% of men.

New State Pension

The new State Pension will be a regular payment from the Government that you can claim if you reach State Pension age on or after 6 April 2016. You’ll be able to get the new State Pension if you’re eligible and:

- a man born on or after 6 April 1951

- a woman born on or after 6 April 1953

The new State Pension will replace the current State Pension scheme. You’ll receive your State Pension under the current scheme if you reach State Pension age before 6 April 2016. You can still receive a State Pension if you have other income like a personal pension or a workplace pension.

How much you can get

The full new State Pension will be no less than £148.40 per week. The actual amount will be set in autumn 2015. Your National Insurance record is used to calculate your new State Pension, and you’ll usually need 10 qualifying years to get any new State Pension.

The amount you receive can be higher or lower depending on your National Insurance record. It will only be higher if you have over a certain amount of Additional State Pension. In addition, you may have to pay tax on your State Pension.

Working after State Pension age

You don’t have to stop working when you reach State Pension age but you’ll no longer have to pay National Insurance. You can also request flexible working arrangements.

Eligibility

You’ll be able to claim the new State Pension if you’re:

- a man born on or after 6 April 1951

- a woman born on or after 6 April 1953

The earliest you can receive the new State Pension is when you reach State Pension age. You’ll usually need at least 10 qualifying years on your National Insurance record to receive any State Pension. They don’t have to be 10 qualifying years in a row.

This means for 10 years, at least one or more of the following applied to you:

- you were working and paid National Insurance contributions

- you were getting National Insurance credits, e.g. for unemployment, sickness or as a parent or carer

- you were paying voluntary National Insurance contributions

If you’ve lived or worked abroad, you may still be able to receive some new State Pension and could also qualify if you’ve paid married women’s or widow’s reduced rate contributions.

Defer your new State Pension

You don’t have to claim the new State Pension as soon as you reach State Pension age. Deferring the new State Pension means that you may receive an extra State Pension when you do claim it. The extra amount is paid with your State Pension (e.g. every four weeks) and may be taxable.

How much you’ll get

The rates and minimum time you’ll need to defer for will be confirmed in 2015. It’s expected that you’ll need to defer for at least nine weeks – your State Pension will increase by 1% for every nine weeks you put off claiming. This works out at just under 5.8% for every full year you put off claiming. After you claim, the extra amount you get because you deferred will usually increase each year in line with inflation.

How it’s calculated

Your new State Pension is based on your National Insurance record. National Insurance contributions or credits on your National Insurance record before 6 April 2016 will count towards your new State Pension.

Valuing your National Insurance contributions and credits made before 6 April 2016

Your National Insurance record before 6 April 2016 is used to calculate your ‘starting amount’. This is part of your new State Pension.

Your starting amount will be the higher of either:

- the amount you would get under the current State Pension rules (which includes basic State Pension and Additional State Pension)

- the amount you would get if the new State Pension had been in place at the start of your working life

Your starting amount will include a deduction if you were contracted out of the Additional State Pension. You may have been contracted out because you were in a certain type of workplace, personal or stakeholder pension.

If your starting amount is less than the full new State Pension

You may be able to get more State Pension by adding more qualifying years on your National Insurance record after 5 April 2016 (until you reach the full new State Pension amount or reach State Pension age – whichever is first).

Each qualifying year on your National Insurance record after 5 April 2016 will add about £4.24 a week (which is £148.40 divided by 35) to your new State Pension.

If your starting amount is more than the full new State Pension.

The difference between your starting amount and the full new State Pension is called your ‘protected payment’. Your protected payment is paid on top of your new State Pension and increases each year in line with inflation. Any qualifying years you have after 5 April 2016 won’t add more to your State Pension.

You didn’t make National Insurance contributions or get National Insurance credits before 6 April 2016

Your State Pension will be calculated entirely under the new State Pension rules. You’ll usually need at least 10 qualifying years on your National Insurance record to get any State Pension. You’ll need 35 qualifying years to receive the full new State Pension, and you’ll get a proportion of the new State Pension if you have between 10 and 35 qualifying years.

Get a State Pension statement

You can get a State Pension Statement that can tell you how much new State Pension you may get.

You’ve been in a workplace, personal or stakeholder pension

Your starting amount may include a deduction if you were in certain:

- earnings-related pension schemes at work (e.g. a final salary or career average pension) before 6 April 2016

- workplace, personal or stakeholder pensions before 6 April 2012

You may have paid lower National Insurance contributions and paid into one of these pensions instead. This is known as being ‘contracted out’ of the Additional State Pension and will affect most people who have been in work.

You can check with your pension provider if you’ve been contracted out in the past. The Pension Tracing Service might be able to find your pension providers’ contact details if you’ve lost contact with them.

Changes to contracting out from 6 April 2016

On 6 April 2016, these rules will change so that if you’re currently contracted out:

- you will no longer be contracted out

- you will pay more National Insurance (which will be the standard amount of National Insurance)

Check if you’re currently contracted out

You may be able to see if you’re contracted out by looking at your payslip. You’re contracted out if the National Insurance contributions line has the letter D or N next to it. You’re not contracted out if it has a letter A. You can check with your employer or pension provider if there is a different letter.

You’re more likely to be contracted out if you work in public sector organisations and professions such as:

- NHS

- local councils

- fire services

- civil service

- teachers

- police forces

- armed forces

Lower rate National Insurance

You pay National Insurance at a lower rate if you’re contracted out. Check with your employer to find out if you’re contracted out.

Your new State Pension is based on your National Insurance record when you reach State Pension age. You’ll usually need to have 10 qualifying years on your National Insurance record to receive any new State Pension. You may get less than the new full State Pension if you were contracted out before 6 April 2016.

You may receive more than the new full State Pension if you have over a certain amount of Additional State Pension.

You’ll need 35 qualifying years to get the new full State Pension if you don’t have a National Insurance record before 6 April 2016.

Qualifying years if you’re working

When you’re working, you pay National Insurance and get a qualifying year if:

- you’re employed and earning over £153 a week from one employer

- you’re self-employed and paying National Insurance contributions

You might not pay National Insurance contributions because you’re earning less than £153 a week. You may still get a qualifying year if you earn between £111 and £153 a week from one employer.

Qualifying years if you’re not working

You may receive National Insurance credits if you can’t work – e.g. because of illness or disability, you’re a carer or if you’re unemployed.

For example, if you:

- claim Child Benefit for a child under 12 (or under 16 before 2010)

- get Jobseeker’s Allowance or Employment and Support Allowance - get Carer’s Allowance

Gaps in your National Insurance record

You can have gaps in your National Insurance record and still receive the full new State Pension. You can obtain a State Pension statement which will tell you how much State Pension you may get. You can then apply for a National Insurance statement from HM Revenue and Customs (HMRC) to check if your record has gaps. You may be able to make Voluntary National Insurance contributions if you have gaps in your National Insurance Record that would prevent you from getting the full new State Pension.

Inheriting or increasing State Pension from a spouse or registered civil partner

You may be able to inherit an extra payment on top of your new State Pension if you’re widowed. But you won’t be able to inherit anything if you remarry or form a new registered civil partnership before you reach State Pension age.

Inheriting Additional State Pension

You’ll inherit part of your deceased partner’s Additional State Pension if your marriage or registered civil partnership with them began before 6 April 2016 and one of the following applies:

- your partner reached State Pension age before 6 April 2016

- they died before 6 April 2016 but would have reached State Pension age on or after that date

It will be paid with your State Pension.

Inheriting a protected payment

You’ll inherit half of your partner’s protected payment if your marriage or registered civil partnership with them began before 6 April 2016 and:

- their State Pension age is on or after 6 April 2016

- they died on or after 6 April 2016

It will be paid with your State Pension.

Inheriting extra State Pension or a lump sum

You may inherit part of or all of your partner’s extra State Pension or lump sum if:

- they died while they were deferring their State Pension (before claiming) or they had started claiming it after deferring

- they reached State Pension age before 6 April 2016

- you were married or in the registered civil partnership when they died

Your partner’s National Insurance record and your State Pension

The new State Pension is based on your own National Insurance record. However, you might be able to increase your new State Pension if you’re a woman and paid married women’s and widow’s Reduced Rate contributions, so you need to find out if you’re eligible.

If you get divorced or dissolve your registered civil partnership The courts can make a ‘pension sharing order’ if you get divorced or dissolve your registered civil partnership. You’ll receive an extra payment on top of your State Pension if your ex-partner is ordered to share their additional State Pension or protected payment with you. Your State Pension will be reduced if you’re ordered to share your additional State Pension or protected payment with your partner.

Living and working overseas

You may contribute to the pension scheme of the country that you live or work in. Contact the pension service of the country you live or work in to find out if you are eligible. You may also get a State Pension from both the country you worked or lived in and the UK if you meet the eligibility for both countries. You’ll have to claim your pension in each country.

Your UK State Pension will be based on your UK National Insurance record. However, you may be able to use your time abroad to make up the 10 qualifying years needed to get any new State Pension.

This is most likely if you’ve lived or worked in:

- the European Economic Area (EEA)

- Switzerland

- certain countries that have a social security agreement with the UK

You will meet the minimum qualifying years to get the new State Pension because of the time you worked overseas. Your new State Pension amount will only be based on the seven years of National Insurance contributions you made in the UK.

Retiring overseas

You can claim the new State Pension overseas in most countries.

Your State Pension will increase each year but only if you live in:

- the European Economic Area (EEA)

- Switzerland

- certain countries that have a social security agreement with the UK

Your new State Pension may be affected if your circumstances change. You can obtain more information from the International Pension Centre.

Source:

[1] Research for MetLife conducted online between 21–22 May among a nationally representative sample of 2,038 adults by independent market research firm ICM.