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Understanding the new State Pension

This month sees the launch of a new service that provides a personalised written estimate of what you can expect to receive under the new State Pension system. This will be based on your work history and National Insurance (NI) contributions to date.

Initially, the estimate will be available to the approximately 2.5 million people who reach State Pension age in the first 5 years of the new scheme – currently between April 2016 and August 2021 – the service will be expanded gradually over the next 18 months, eventually becoming available to all working age contributors.

Minister for Pensions, Steve Webb MP, said:

“The new statement service means that for the first time we can give those people closest to State Pension age personal information on how they will be affected by the reforms. Over the next 18 months, this will be rolled out further until eventually it is available to everyone of working age.

The introduction of the new State Pension marks the biggest reform of the State Pension in a generation. At its heart is the concept of a clearer, fairer, single-tier payment, the full rate of which is set above the basic means test, but which remains contributory in nature.

Over time, the various complexities which have built up in the present system will be swept away and replaced by a much more straightforward weekly payment. Those people with 35 qualifying years of National Insurance contributions will receive the full rate, which will be set above the basic level of means-tested support (currently £148.35 a week).

In future, the option for people to ‘contract out’ of paying full NI contributions will be removed, so that everyone pays a standard rate. Those who have contracted out in the past will have an appropriate deduction made to their starting amount.”