Written by Ray Coman
|Single Tier Pension
|Basic State pension
|Basic State Pension for Married Couple
Single Tier pension
The single tier pension applies for individuals who reach state pension age before 6 April 2016. This applies to men born on or after April 1951 and to women born on or before April 1953.
New state pension
Introduced from 6 April 2016, the new state pension will result in some individuals being better off and some worse off than under the previous system.
From 6 April 2016, a person starting work after 6 April 2016 will be required to have 35 qualifying years in order to obtain a full new state pension. Previously, the minimum requirement was 30 qualifying years. An individual who has been contracted out may not obtain the single tier pension, even with 35 qualifying years of contributions.
A taxpayer who has contracted out for part of their working life could have a pension entitlement less than the single tier. However, provided NIC credit has been obtained for the required number of years, the pension entitlement will not be reduce below the basic amount.
It will not be possible to add to any additional state pension from 6 April 2016.
People better off on the new state pension
Many individuals are not entitled to an additional (also called, second) state pension, such as the self-employed, directors of companies receiving a minimum salary, and benefit claimants, such as women on maternity allowance and long-term carers. Since the second-state pension is discontinued from 6 April 2016, individuals who have previously not made additional national insurance contributions will be no worse off. People in the above groups will be entitled to the single tier, provided they have 35 years of National Insurance credit. Before 2016-17, the above groups would have accrued only the basic state pension.
People losing out because of the new state pension
High earners had previously accrued entitlement to an additional state pension through making more national insurance contributions. This is because Class 1 National Insurance is a percentage of earnings.
However it will no longer be possible to accrue the second state pension from 6 April 2016. On 6 April, a person’s accrued entitlement to the basic and additional state pension is calculated. Whichever is the higher of this amount and the single tier is referred to as the ‘starting amount’. If the starting amount is more than the single tier, it is referred to as a ‘protected payment.’ The protected payment is paid in addition to the new state pension, and will increase with inflation.
Over time the starting amount is less likely to be higher than the single tier. People starting work from 2016/17 will receive no more than single tier state pension.
In summary, some higher earners will receive less state pension after 5 April 2016 than if they had reached retirement age before. The younger the high earner, the less likely to benefit from the new rules. It is unlikely that a younger person will already have built up enough additional state pension entitlement to reach £155.60.
Some pensioners retiring before 2016-17 will get a basic state pension, where they would have got a single tier. A pension credit will increase entitlement to the same as single tier for low income individuals. Younger people will have to obtain more years of qualifying national insurance credit.
Qualifying years explained
A taxpayer would normally obtain a national insurance credit if employed, self-employed or has made a voluntary contribution. In certain circumstances, a person obtains a credit for year in which social security benefits were claimed.
From 2016-17, a person will require 35 qualifying years to obtain the single tier pension. Those with fewer years will have the pension reduced on a pro-rata basis.
A minimum of 10 years of contributions is required in order to receive any pension at all.
Up to 2015-16, a person who has accrued 30 qualifying years between school leaving age and retirement age would be entitled to the full, basic state pension. As explained above, a person may have some of the additional state pension accured up to 5 April 2016 protected.
Up to 5 April 2016, individuals who are married but do not qualify for a pension would be entitled to the spouse's pension. This could occur where a person has not made sufficient years of contributions.
However, from 6 April 2016, there is no spouse pension, unless a person elected to pay a reduced rate of National Insurance. The Reduced Rate was only available up to April 1977. The rates for pensioners who elected for Reduced Rate NI are given above.
A married person who qualifies for a full pension would be entitled to the same as a single person.
Broadly, pension credit is a means tested benefit and only payable if income is below the above thresholds. The payment will top up income until it reaches the above threshold. For a married person, the income for both partners is tested, and a credit is paid to the extent that combined income is below the threshold above. Pension credit is payable to individuals who are older than the state pension age. Unlike state pension, the pension credit is non-taxable. Pension credit is the same as the single tier and is therefore set to gradually phase out.
State pension age
The state pension age is 65 for men. It will be 65 for women as well by November 2018. A man is entitled to the basic state pension if born after 5 April 1951 and a woman if born after 5 April 1953. The pension age will continue to rise from December 2018, reaching 66 in 2020 and 67 by 2028.
The calculation of pension entitlement can be complex. Please contact the State Pension Service for a forecast.