New Changes To UK Pensions – How Does It Impact You?

UK’s State Pension changed on 6th April 2016. If you attained State Pension age on/after 6th April 2016, you will get the new State Pension with new rules aimed at simplifying everything. Here’s what you need to know about the new changes if you’ve made contributions under the previous/old system.

How are you affected?

If you have been receiving a State Pension, the new changes won’t affect you. You will still continue receiving your pension under the old system rules. The same applies to individuals whose State Pension was taken early i.e. 1953 but deferred to any date after 6th April 2016. In such a case, calculations will still be made using the old system rules. If you had not accumulated any State Pension before/by 6th April 2016, new State Pension rules apply.

Key changes

One of the key changes to UK’s State Pension touches on the earnings-related section applied to employees. This part which was known as Additional State Pension has been abolished. The new pension is now based on National Insurance alone. Currently, the new pension stands at £155.65 per week. It is, however, possible to get more if you have entitlement to more state pension (under the previous system). To be eligible to receive £155.65 per week under the new system, you will require 35 years National Insurance record.

How the new State Pension is calculated

Your National Insurance record as of 6th April 2016 will be used to come up with a starting amount that is higher than what you would get under the previous system. If the starting amount happens to be higher than the new full State pension, you will get the entire new State Pension sum plus anything else above as protected payment which is inflation-adjusted. However, you can’t be able to accumulate more State Pension going forward.

If the starting amount equals the full new pension, you will get the full new pension. However, you can’t be able to accumulate more State Pension going forward. When your starting amount is less than the new full State Pension, you can accumulate more State Pension to a max. of £155.65 per week until you attain State Pension age.

Deferring new State Pension

You can still defer taking your pension under the new changes. For every year deferred, you stand to enjoy a 5.8% increase compared to a 10.4% increase enjoyed under the old system. The new changes also deny you the right to take the entire deferred amount at once.

New State Pension in regards to women’s/widow’s reduced rate National Insurance contributions

The new pension system is based on your National Insurance contributions alone. Your pension can, however, be calculated using different rules resulting in a higher rate if you choose women’s/widow’s reduced rate National Insurance contributions.

Topping up

The new system avails two schemes for topping up your pension. The scheme you use will depend on; if you have attained State Pension Age.

Class 3 Voluntary NI Contributions

In the new pension system, it is possible to make Class 3 NI contributions if you haven’t attained State Pension Age, but you are worried about having enough NI contributions to qualify. The contributions are voluntary and solely meant for helping people fill gaps in their NI records for purposes of boosting basic pension entitlement.

Passing over your pension to your dependants

The new rules have made it easy to pass over your pension to your dependants. For example, if you die before reaching 75, your pension will be transferred over to your dependants tax-free. Tax has also been reduced from 55% to 45% for individuals who die after 75, and your dependants want the entire pension as a lump sum.

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