State Pension overhaul: How much will you get?

There are just seven weeks to go until the new State Pension comes into effect, so let’s take a look at the changes and what they could mean for you.

The new changes aim to simplify the current system and give people a more accurate understanding of how much income to expect when they reach state retirement age.

How much will the State Pension be?

For people who qualify the maximum amount will be £155.65 a week or £8093 a year – over £2000 more than the current pension. The level of income you’ll receive will continue to be based on your national insurance record, so not everyone will receive the same amount, as explained below. 

Who qualifies for the new State Pension?

Men born on or after 6th April 1951 and women born on or after 6th April 1953 will receive the new benefits. Anyone who is currently receiving their pension benefits will not be affected.

From 6th April this year the criteria to receive the full State Pension will change. The number of qualifying years needed will increase from 30 to 35 full years.

You must have a minimum of 10 qualifying years to receive any payments. Each qualifying year counts as 1/35th of your pension amount and is calculated on a pro-rata basis. 

What do people ask?

  • Do I have to claim my pension when I reach the state retirement age?

No, if you’re not ready to receive your pension you can defer it. If you do defer, your State Pension income will increase by 1% for every 9 weeks that you put off claiming, or almost 5.8% for every full year.

For example, if you’re eligible to receive the full £155.65 and you defer it for one full year it will increase by £467 a year. So your new weekly payment will be £164 for the rest of your life, making you better off by almost £500 a year.

  • Can I continue working past the state retirement age?

Yes, you can continue to work when you reach state retirement age. If you do, you’ll need to provide your employer with proof of your age so they can stop deducting national insurance contributions from your pay, which means more money in your pocket.

  • Will I have to pay tax on my pension payments?

Your pension payments are treated as taxable income along with any other sources of income you’ll be receiving. If your total income for each tax year exceeds the personal allowance, set to be £11,000 when the new State Pension takes effect, you’ll have to pay your marginal rate of income tax on the excess. 

If the State Pension is your only source of income you won’t pay income tax as it is less than the personal allowance.

  • Can I take my State Pension as a lump sum or several smaller lump sums?

The State Pension is provided in regular instalments and cannot be taken as a lump sum

  • Do my qualifying years have to be consecutive?

No, any gaps in your national insurance record will not affect your eligibility to receive the new State Pension, although if you have fewer than 35 full qualifying years you may receive less than the full amount of £155.65 a week.

  • If I do not have enough qualifying years can I top up my pension?

Yes, if you meet the eligibility criteria you can make voluntary contributions to account for any gaps in your national insurance record. Usually you can only account for gaps in the past 6 years, and how much you pay depends on your age and employment situation.

  • If I have other sources of income aside from the State Pension will I receive less money?

No, your State Pension amount is not affected by any other income you have and will not be reduced if you continue working past the state pension age.

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new

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