Pensions are changing more than any other financial area at the moment and further legislation is likely in the new Government’s first budget (due to be delivered on 8 July 2015).
When you think about your retirement and what you will have to live on, make sure you take into account all income available, especially what you are likely to receive from the State.
The eligibility criteria for a full State Pension are changing on 6th April 2016 and anyone reaching State Pension age on or after this date will be subject to the new regime. These changes may affect you without you realising until it’s too late, so it’s essential you take action now.
The new State Pension will broadly look like this:
- The Basic State Pension and the Additional Pensions (e.g. SERPs etc.) will be replaced by one pension payment designed to simplify the way the system works; It will become an individual entitlement, so anyone who is part of a couple needs to ensure they are aware of their own entitlement and not rely on their spouse;
- The starting amount will be announced in Autumn 2015 and set at a level that is higher than the current Pension Credit guarantee (£148.40 per week); To qualify for the new State Pension, you will need at least 35 years National Insurance contributions or credits (currently this is 30 years);
- To qualify for any new State Pension, you will need at least 10 years of National Insurance contributions or credits. Those with between 10 and 34 years will receive a proportionate benefit;
- Any contracting out will end (for those who still have it within their defined benefit scheme); and The Savings Credit part of Pension Credit will be removed.
What action should you take?
It is important that you regularly check that you are on track to receive a full entitlement. You should either phone the Future Pension Centre on 0845 3000 1680845 3000 168 or request a statement online on https://www.gov.uk/state-pension-statement.
Although the changes are designed to simplify the State Pension, an individual entitlement is specific to your circumstances. This is why it is important to get a statement. Once you have received the information, you will be in a position to decide what you need to do.
It will be possible to top-up with a new class of voluntary National Insurance contributions (called Class 3A). This is being introduced from October 2015 for a period of 18 months.
Who especially needs to take action?
There are new rules that mean that individuals with specific circumstances need to take action. These include:
- High-earning individuals with a non-working spouse who is at home looking after children under the age of 12. It is necessary to claim for child benefit (and request payment is withheld), as it is this process of claiming that triggers the credit towards State Pension; and
- Anyone with less than 35 years’ National Insurance credits. Whilst the rules state that you will get the higher of the amount you would have received under the current system (including basic and additional pension) and the amount you would get if the new State Pension had been in place at the start of their working life, this should be clarified in case a top-up is appropriate.
Retirement planning is a complex area of advice. There are new rules on just about every aspect. Getting advice is essential and this needs to take into account any private planning and also any State Pensions.
Contact Don Fisher for further information.