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Why has the State Pension changed?

Posted on: 25 May 2016 by James Hester

The new State Pension has been introduced for people who reach State Pension age on or after 6 April 2016.

Why is the state pension changing? 

The introduction of the new State Pension on 6 April 2016 brings clarity to a system that few people truly understand. The reforms will reduce pensioner means-testing and support personal saving for millions of people.

 

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What’s changed?

Under the new rules, the earnings-related part of the State Pension, known as the Additional State Pension, has come to an end, along with other complicated elements of the old rules. The new State Pension will usually be based on your National Insurance (NI) contributions alone.

As life expectancy in the UK has been increasing, the Government has made plans to raise the age when you can claim your State Pension. Until 2018 women’s State Pension age is rising to 65 and by 2020 both men and women’s State Pension age will be increasing to 66. By 2028 both men and women’s State Pension age will be increasing to 67.

As examples of increasing life-expectancy - in 1991, a 65 year old woman in the UK could expect to live, on average, for another 19 years. By 2015, this had increased to 24 years. As of last year, a 65 year old man could expect to live for another 21 years*. That’s compared to just 16 in 1991; an increase of nearly 6 years in just over 2 decades.

This increased life expectancy means it is more important than ever to think about how you will fund your later years.

Find out your State Pension age

 

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Why change it?

The old State Pension rules had become very complicated, and the new rules will help you to better understand how much you will get when you reach State Pension age.

 

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What you get

You can check your State Pension using a new online service. The service will help you find out how much State Pension you may get, the earliest you can get it and if you can improve it. Visit www.gov.uk/check-state-pension

If you have a shortfall or any gaps in your NI record, you may wish to make additional voluntary contributions to increase the amount of State Pension you will get.  

At the end of the day, the money you have available to live on in retirement is down to you. The State Pension is just one part of your potential income in retirement. What you have to live on also depends on what you’ve built up in your workplace pension as well as any other private savings you’ve made. 

Further Information

You can find out more about the State Pension at www.gov.uk/yourstatepension and www.youtube.com/pensiontube

*Sources:

www.ons.gov.uk/ons/taxonomy/index.html?nscl=Life+Expectancies#tab-data-tables

www.ons.gov.uk/ons/dcp171778_426798.pdf

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Week starting Monday 23 May 2016

Qualifying year

A complete tax year during a person’s working life in which they paid, were treated as having paid or were credited with National Insurance contributions on earnings above the weekly ‘Lower Earnings Limit’ (£112 a week in 2016 to 2017).