A state pension is a sum of money that you build throughout your career to provide you with an annual income in retirement. For some, this may be their only means of income, whilst for others it may provide for a more comfortable way of living.
It is therefore important that you are aware of any developments or changes that may affect your state pension, as well as when you are eligible to receive it.
The lifetime allowance for pension savings has drastically decreased over the years. What started out at £1,500,000 in 2006, is now £1,073,100, and will remain at this level for tax years 2021 – 2026. Although the ‘triple lock system’ means that the state pension will rise faster than inflation, it is still a low state benefit in comparison with average earnings.
What is the new state pension?
The new state pension is a regular payment from the government that most people can claim in later life, but eligibility to claim the payment will depend upon the number of National Insurance (NI) contribution years and your age.
Usually you will need to have at least 10 qualifying years of NI contributions (these do not need to be in a row) and those who have had 35 or more qualifying years will be eligible to claim the full state pension of £179.60 per week.
You can check your state pension age, whether you are entitled to claim the full state pension and when, by checking the government’s website.
How is it paid and how much will I get?
Once you have established your eligibility, you can make a claim. After this, you will get a letter detailing your payments.
The new state pension is usually paid every four weeks into an account of your choice and your first payment will be within five weeks of reaching your state pension age.
Your NI record before 6th April 2016 is used to calculate your ‘starting amount’ and this will be the higher of either: the amount you would get under the old state pension rules, or, the amount you would get if the new state pension had been in place at the start of your working life.
If you did not make any NI contributions or did not receive NI credits before 6th April 2016, your state pension will be calculated entirely under the new state pension rules.
The new state pension increases annually by whichever of the following is the highest:
- Earnings (the average percentage growth in wages in Great Britain);
- Prices (the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI));
The state second pension
The state second pension, or additional state pension, was introduced with the aim of skewing existing additional pension benefits in favour of low and moderate earners, at the expense of higher earners.
It also extends access to include those with long-term illness, disability, and certain carers. This state pension rose in line with CPI, representing a 0.5% increase from April this year.
You are eligible to receive the additional state pension if you reached state pension age on or after 6th April 2016, and this will be an automatic payment if you have already started claiming the basic state pension.
KLO Financial Services
If you are interested in independent pension advice, we can help.
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