Changes to the State Pension system
Posted on: 14/10/2016
The current State Pension is made up of two parts: the basic State Pension and the additional State Pension (the additional State Pension is sometimes called State Second Pension or SERPS). The Nationwide Pension Fund is currently ‘contracted-out’ of the additional State Pension. This means you pay National Insurance at a lower rate and build up pension in the Fund rather than the additional State Pension.
From 6 April 2016, there will be a new State Pension for people reaching State Pension age on or after this date. When the new State Pension is introduced it will replace the existing basic and additional State Pension. This will also mean the end contracting-out (of the additional State Pension) and the lower National Insurance rate you currently pay.
What amount of State Pension will I receive?
The full rate of the new State Pension will be no less than £151.25 per week. The actual amount has yet to be announced. However, not all individuals will receive the full amount straight away. Your entitlement will be calculated in April 2016 as the greater of:
- what you have earned to date under the current State Pension system, and
- your entitlement based on the new State Pension rules; this will include a deduction to reflect the period during which you earned benefits in the NPF rather than in the Additional State Pension scheme.
If your entitlement, calculated as above, is less that the new flat rate State Pension you will build up additional State Pension if you continue working and paying national insurance contributions. You can find out more on how the new State Pension will work and how you’ll be affected at gov.uk.
If you’re aged 55 or over you can also now get a personalised State Pension statement based on your work history and National Insurance contributions to date. The statements will include information on deductions applied to in respect of periods of contracted-out employment.
Your increased National Insurance contributions (for active members)
From 6 April 2016 the rate of National Insurance you pay will increase from 10.4% to the standard rate of 12%. Although you’ll pay more in National Insurance contributions, you’re likely to get a bigger State Pension as a result of the changes. Based on current rates of National Insurance (which may change), the table below illustrates examples of the annual and the monthly change in your gross pay
| Annual Gross Pay | Annual National Insurance Increase (from April 2016) | Monthly National Insurance Increase (from April 2016) |
|---|---|---|
| £8,064 | £0.00 | £0.00 |
| £10,000 | £48.55 | £4.05 |
| £12,000 | £74.59 | £6.22 |
| £15,000 | £113.65 | £9.47 |
| £18,000 | £152.71 | £12.73 |
| £20,000 | £178.75 | £14.90 |
| £22,000 | £204.79 | £17.07 |
| £25,000 | £243.85 | £20.32 |
| £30,000 | £308.95 | £25.75 |
| £35,000 | £374.05 | £31.17 |
| £40,000 | £439.15 | £36.60 |
| £45,000+ | £478.92 | £39.91 |
Your State Pension age
You’ve probably heard about how the government are increasing the state pension age. You can use the State Pension age calculator to work out when your state pension will become payable.
Where can I find out more?
“8 things you need to know about pensions”. This contains links to the State Pension tools, and information on Pension Wise.