Over the past few years, there have been so many changes to the Pension system that it’s hard to keep up with them.
One big change coming into effect this tax year is to the State Pension.
The aim is to introduce a fairer system that makes it easier to calculate what you are entitled to so you can plan for retirement.
What are the changes?
From 6th April 2016, we moved onto a new Flat Rate Pension of £155.65 per week (2016/2017). This is an increase from the maximum Basic State Pension of £119.30pw. It replaces the two-tier system whereby some people receive an additional pension related to employed earnings.
What this means for you
If you start to draw your state pension after 6th April 2016, the amount you receive will be based on the National Insurance (NI) contributions you made during your working life.
If you have made at least 35 years of NI contributions or credits, you will get the full Flat Rate Pension, otherwise, you’ll get less. You’ll also get less if you have ever been ‘contracted out’ of the State Pension scheme. If you made under 10 years of NI contributions or credits, you will not be entitled to any State Pension at all.
There is a transition period and some exceptions to the rules. In addition, if you have fewer than 35 qualifying years, you could look into buying additional years to increase your NI record.
The State Pension you receive depends on when you became eligible for the payment, not when you first take receipt. Therefore, you will not be affected by the new changes if you were eligible before 6th April 2016 but deferred payment.
Planning how you are going to fund retirement is essential, and it’s important to know exactly how much you will receive.
To find out your State Pension entitlement, you can complete an online application form at gov.uk/check-state-pension.
At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.