Understanding the state pension

by | Aug 15, 2019

The state pension has undergone a lot of change in the past few years, with the latest  system put in place on 6 April 2016.

Although the Government’s aim was to make it easier for people to understand how much they would receive in retirement, navigating the new rules can still be complicated.

Not being aware of certain rules can mean you risk missing out on the full amount when you retire, so it’s important to understand the new system and check how much you’re entitled to.

How much state pension will you get?

The full state pension is £168.60 a week in 2019/20, but the actual amount you get will depend on how many qualifying years you’ve worked.

Qualifying years can be ones in which you were working and paying national insurance contributions, but they could also be years when you have received national insurance credits or paid voluntary contributions.

You’ll usually need at least 10 qualifying years on your national insurance record to get any entitlement to the new state pension, although these don’t have to be consecutive years. 

To receive the full amount, you’ll need 35 complete years. 

It’s essential to check how many qualifying years you’ve built up, as this can make a significant difference to your income when it’s time to retire.

What about the years before the rules changed?

The new state pension system applies to years after it came into place on 6 April 2016, but for the years before that date, your national insurance record is used to calculate a ‘starting amount’. 

This is either the amount you would get under the old state pension rules, or the amount you’d receive if the new state pension had been in place at the start of your working life – whichever is higher.

How does child benefit affect your pension?

When you’re looking after a young child, your pension is probably not the first thing on your mind – but claiming child benefit can make a difference to the amount of state pension you receive.

Parents who are not working while looking after a child under 12 can claim child benefit and get national insurance credits for that year, which count towards their state pension entitlement.

This is the case even for parents with a high income, who might not receive the benefit itself.

If you have an annual income of more than £50,000 and either you or your partner receive child benefit, you’ll have to pay a tax charge which effectively reduces the amount of child benefit you have.

The charge increases on a sliding scale, meaning those with an income of more than £60,000 must pay back 100% of the child benefit they get.

However, if the individual claiming child benefit in that situation is not paying national insurance – for example, if they’re staying at home to look after children while their partner works – they can still receive national insurance credits.

In January 2019, HMRC data showed more than 200,000 parents could be missing out on their full state pension entitlement by failing to claim child benefit.

Still not sure?

To get information about your state pension, you can contact HMRC on 0800 731 0469. You can also get a state pension forecast by using their online service, contacting the Future Pension Centre, or filling in the BR19 form and sending it by post.

Once you have a statement from HMRC, be sure to check the data they hold is correct.

A full list of contact details for HMRC’s pension service can be found here.

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