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UK State Pensions by Richard Samuels, Independent Financial Adviser, Blacktower Financial Management

The UK State Pension has undergone a huge change. While the Government’s aim has been to make it fairer for all and easier to understand retirement income, it’s still a minefield for most, with some losing out with last year’s overhaul. Here is an outline to help you understand the ‘flat-rate’ State Pension which came into force on 6th April 2016 for those reaching their State Pension age on or after this date.

If you reached State Pension age before this date, you’ll get the State Pension under the old rules.

The old rules give a basic State Pension, currently around £122 per week, plus an Additional State Pension based on your National Insurance contributions.  The new State Pension is a flat rate (currently £159 per week) for all and the Additional State Pension has been scrapped.  Under the old rules you need 30 qualifying years to receive the full basic amount.

Your State Pension age is the earliest age you can start receiving your State Pension. It may be different from the age you can get a workplace or personal pension. Your State Pension age is worked out based on your gender and date of birth.  You can keep working after you reach State Pension age. ‘Default retirement age’ (a forced retirement age of 65) no longer exists.

To save the state money over recent years, the official retirement age is gradually being raised, with women currently getting the state pension at age 63 and men at age 65. This will rise to at least 66 for both by 2020, 67 by 2028, and to 68 in the 2030’s. To get the full new State Pension, you will need a total of 35 qualifying years of National Insurance contributions or credits.

If you have fewer than 35 qualifying years, your new State Pension will be less than £159 per week but you might be able to top up by paying voluntary National Insurance Contributions.

Should your spouse pass away, you may be able to get extra pension payments from your husband, wife or civil partner’s pension or National Insurance Contributions. You need to be over State Pension age to claim extra payments from their State Pension.  However, what you get will depend on whether you reached State Pension age before or after 6th April 2016. If you did, you’ll get any State Pension based on your partner’s National Insurance Contribution when you claim your own pension – but you won’t get it if you remarry or form a new civil partnership before you reach State Pension age.

Contracting out also ended in April 2016, but your contracting out history will still impact how much state pension you get.

In addition to the basic State Pension, the state previously provided a second-tier Additional State Pension, based on how much you earned. Introduced in 1978 and originally called the State Earnings Related Pension Scheme (SERPS), it became State Second Pension (S2P) in 2002.

Before 2012 rule changes, employees were allowed to ‘contract out’ of this additional pension. In exchange for lower National Insurance Contributions they gave up part or all of it and received extra pension from their occupational scheme or personal/stakeholder pension instead.

The Government gave incentives to encourage people to leave the State Earnings-Related Pension Scheme (SERPS). For the first five years of the scheme, the government paid in an extra 2% of your earnings into your personal pension. By 1992, over 5 million had left SERPS for a personal pension.

Back in the 1980s, some advisers were falling over themselves to contract people out of the state scheme into personal pensions.  People were encouraged to do this as the advisers received small amounts of commission and there was no outright cost.  If you ask people who have contracted out whether they understood why, they haven’t a clue.  It really was a case of ticking the box.

Were you one of them?

How can I find out if I have ever contracted out of SERPS?

If you have contracted out of SERPS the next step is to trace the pension scheme.

We offer a service that can help you track lost pensions, including personal pensions or occupational pensions and schemes used to ‘contract out’. If you have lost touch with a pension scheme since moving to Spain we can contact them on your behalf in order to find out what your pension entitlement may be.

Our Pension Tracing Service is completely Free of Charge, with no obligation. 

We can also help you get a State Pension Statement which will just give you an estimate of how much State Pension you may get when you reach State Pension age.

For more details on how to protect your finances and for an initial review of your pensions and savings please feel free to call me on 692 352 156 or email richard.samuels@blacktowerfm.com

For further information contact:
Richard Samuels, International Financial Adviser,
Blacktower Financial Management (International) Ltd
M: 692 352 156 or E: richard.samuels@blacktowerfm.com

The above information was correct at the time of preparation and does not constitute investment advice and you should seek advice from a professional adviser before embarking on any financial planning activity.

Blacktower Financial Management Ltd is authorised and regulated in the UK by the Financial Conduct Authority and is registered with both the DGS and CNMV. Blacktower Financial Management (Int) Ltd is licensed in Gibraltar by the Financial Services Commission (FSC) and is registered with both the DGS and CNMV in Spain.