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The State Pension shake- up – what you need to know

ImageforArticle2The State Pension – still called by many as their Old Age Pension – is changing.

It changed barely at all during most of its history since its introduction in 1940, yet in recent years – and in the foreseeable future – there have been revisions to the rules certain to affect the pensions received by anyone born after the 6th of April 1970, that is to say, those currently aged below 47.

As the Telegraph newspaper reported on the 23rd of July 2017, those people currently in their forties may have to wait until the age of 68 before they qualify for a State Pension, whilst those who are still below the age of 39 face an uncertain future in which retirement age might rise still further.

What do you need to know about the shake-up that has been taking place?

How the State Pension works

The State Pension is funded by National Insurance contributions – these are paid by anyone in work, whilst so-called “pension credits” are also awarded to others, such as those too ill to work, people who provide care for others, and the unemployed.

You may start to receive your State Pension when you reach your State Pension Age (SPA) and it is this age qualification that has seen the most changes in recent years – a response to steadily rising life expectancy, which has naturally been increasing the huge costs borne by the State Pension fund.

Eligibility

To qualify for a State Pension at all, you need a minimum of 10 years National Insurance contributions or pension credits.

In order to qualify for the full amount of State Pension, however, you now need to have made 35 years of contributions – a figure in April of 2016 which was increased from just 30 years.

State Pension age (SPA)

Not only do you need to have made National Insurance contributions for a longer period, but the age at which you may take your State Pension is also rising – for those in their forties, according to the latest government decision, the SPA is set to climb to 68.

How much you get

Despite the apparently simple principle of a State Pension based on the number of contributions you have made by the time you reach State Pension age, the actual amount you receive is surprisingly complicated – especially if you reached State Pension age before the 6th of April 2016.

Depending on which side of this 6th April 2016 divide you fall, the pension rules and the calculation of the value of your weekly State Pension is described in some detail on the website of the official Pensions Advisory Service.

Those who reached their SPA before the 6th of April 2016 have a State Pension – whether it is already in payment or has been deferred – based on the number of years of contributions (to provide a Basic State Pension, BSP), an earnings-related Additional State Pension and a Graduated Retirement Benefit, based on graduated contributions that may have been paid during the years between April 1961 and April 1975.

If you reach your SPA on or after the 6th of April 2016, the situation is theoretically much simpler, thanks to a new, single-tier State Pension scheme. Although this system represents a more streamlined scheme for the future, there are complicated transitional arrangements for many of those who are currently of working age – and the various outcomes are described by the Pensions Advisory Service.
Further reading: Pension news: Invest £741 this year and gain an extra £237 a year income - for life

Please note that IPSL does not provide advice about the State Pension. Please refer to the Government website at: https://www.gov.uk/browse/working/state-pension

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