New State Pension Rules Are Coming

New State Pension is comingThe State Pension rules are changing in 2016. There will be a new flat rate of pension but not everyone will be eligible to receive it.

Here’s how it will work.

From 6th April 2016 men born after 6th April 1951 and women born after 6th April 1953 will be eligible for the new flat rate State Pension.

The new rate will be not less than £151.25 per week – the exact amount will be confirmed later in November 2015.

Anyone who reaches state retirement age before 6th April 2016 will not be eligible for the new flat rate pension.

If that affects you – read on because there is something you can do to improve your State Pension situation.

Is age the only requirement for the flat rate State Pension?

Eligibility for the new flat rate State Pension will also depend on your National Insurance contributions. In most cases you will need at least 10 years NI contributions in order to qualify and 35 years will be needed to receive the full amount of pension.

It will be your National Insurance record up to 6th April 2016 that will count for eligibility purposes but to qualify for the maximum amount you’re going to need more than just full NI contributions.

Contracting out of Additional State Pension affects full entitlement

If you have contracted out of the Additional State Pension, for example, because you have been contributing to a personal or stakeholder pension scheme or you have been in an earnings-related pension scheme, a deduction will be made so you will not receive the higher level of the new flat rate State Pension.

Starting amounts of flate rate State Pension will vary

The amount of pension you start on will be the higher of the amount you would have been entitled to under the current State Pension rules i.e. basic State Pension and Additional State Pension and the amount you would have received if the new rules had been in place at the beginning of your working life.

Retiring before 6th April 2016?

If you’re retiring before 6th April next year the Government is giving an opportunity to top up your State Pension. The scheme is called Class 3A National Insurance contributions. By paying a lump sum you will be able to top up the amount of State Pension you can receive by up to £25 per week.

The size of the lump sum needed in order to receive the maximum additional £25 per week will depend on your age – the younger you are the more you will need to pay. The Government has provided a calculator so that people can work out the amount of the lump sum payment they will need to make and there will be a period of 18 months after the new rules come into force in which the lump sum payment can be made.

Is topping up State Pension right for everyone?

Topping up isn’t necessarily going to be right for everyone. You will need to work out whether the additional pension you could receive is likely to be better than the return you could get from investing the same amount in a savings or investment scheme.

It will not be possible to get back the lump sum once it has been paid. In the event of death, the civil partner or widow or widower will be able to receive between 50% and 100% of the extra pension but entitlement will be subject to certain eligibility rules.

For some people who have an incomplete National Insurance record they may be better off making Class 3 National Insurance contributions rather than paying a lump sum Class 3A contribution.

Taking financial advice is always a good move before taking any important investment decisions. If you want to know where you can find more information and advice call us on 0115 7722129 or visit the Gov.UK website.

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