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UK Basic State Pension Changes

Blacktower FM - 1

A brand new state pension was ushered in on 6 April 2016 as a result of a massive shake-up. The new payout has been designed to make the whole process easier to understand though it’s still far from simple.

The old system was in two parts, a basic state pension of £119.30 plus an additional pension if applicable with 30 years NI contributions required to get the maximum amount.  Under the new system there is a flat rate payment of £155.65 plus any protected payment for which you will need to have 35 years NI contributions to get the maximum amount.  There are also a minimum of 10 years in the NI system required to get anything at all.

The new system will apply to you if you are a man born on or after 6 April 1951, or a woman born on or after 6 April 1953.  To save the state money, the official retirement age is gradually being raised. While many women currently get the state pension at age 63 and men at age 65, the thresholds are moving up. They will rise to at least 66 for both by 2020, and possibly to 68 in the 2030s

The maximum flat-rate people can receive under the new single-tier system has been set at £155.65 a week. This will be paid as long as men and women have built up the necessary 35 qualifying years.  As a general rule, you’ll get the equivalent value of the state pension according to the total number of years you’ve built up – so 23 years would give you roughly two thirds of the payout, or about £103.

It’s estimated less than half retiring under the new system will qualify for the full flat-rate amount in the first five years. This is mainly due to the numbers of people who won’t have enough qualifying NI years because they’ve been what’s known as ‘contracted out’ of the old state pension in the past.

Now, if you are, or were, in what is known as a defined benefit pension, you’re likely to have been ‘contracted out’ of the additional state pension.  In a nutshell, it meant workers paid a lower rate of NI contributions. This was because in return they will have paid extra into their workplace scheme, or had it paid for them by their employer. Millions of workers with company pensions in the public and private sector are affected. Some stakeholder- and personal-pension schemes were also contracted out.

This means that, for the purposes of eligibility, you may not qualify for a full £155.65 despite having what you thought were 35 years of NI contribution.

I have been a fully Qualified Financial Adviser for 28 years and also understand the needs of ex-pats and the rules that apply to ex British living and retiring in Spain, in today’s financial climate it is essential you do everything you can to make sure your money is safe and secure and what you want to transpire in the future has the best chance of happening.

If you need advice or if have any questions regarding the above contact me Keith Littlewood DipPFS on 657 684 094 or email keith.littlewood@blacktowerfm.com

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