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Changes to your State Pension

From 6th April 2016 a new flat rate State Pension will be introduced for everyone, which is expected to be around £150 a week, depending on your National Insurance contribution record.

Why is it changing?

The government wants to introduce a simpler, fairer and more transparent system than the existing pension structure so the individuals have a clearer idea of how much the will be entitled to, and therefore are more able to plan for their retirement.

What are the main changes?

  • Current basic and additional pensions will be replaced by a single-tier, flat-rate State Pension.
  • The level will be set in Autumn 2015 and worth more than the standard amount.
    • To qualify for the full single-tier State Pension you will need at least 35 years National Insurance (NI) contributions or credits.
    • To qualify for any new State Pension you will need at least 10 years of contributions.
    • Those with between 10 and 34 years of contributions will receive a proportion of the pension.
  • The State Pension age will increase from 66 to 67 between April 2026 and April 2028
  • There will be a provision for 5-yearly reviews of the State Pension age.
  • ‘Contracting out’ will end for people in defined benefit occupational schemes.
  • It will be an individual entitlement, so in general there will be no special rules for people who are married or in civil partnerships, bereaved or divorced.
  • Pension Credit and other means-tested benefits will continue to provide a safety net, but the savings credit element of Pension Credit will be abolished.
  • The proposals are intended to be cost neutral every year – meaning that overall spending on State Pensions will not increase – so there will be winners and losers as compared to the current system.

Who will be impacted?

The new single-tier pension will only affect people reaching State Pension age from 6 April 2016 onwards.

  • women born on or after 6 April 1953
  • men born on or after 6 April 1951.

It’s the date that you reach State Pension age that’s important – not when you start to claim your pension. However, you may be able to make top-ups.

If you are due to reach State Pension age in the first 5 years of the new system, you can ask for an estimate of your new State Pension.

While £150 a week may not seem a lot to live on please note that with a 5% annuity rate you would need a fund of over £155,000 to generate such an income.

If you would like to review your options regarding your retirement planning on a confidential basis, any of the team at our sister company CullenWealth would be happy to discuss this with you on a no obligation basis.

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