Financial Adviser Explains - The New State Pension (UK)

Introduction

In this video, the speaker discusses the new state pension in the UK. The video covers topics such as who is eligible, how much you can receive, how to claim it, and more.

What is the New State Pension?

• The new state pension is a regular payment from the government that starts at your state pension age and continues until death.

Who is Eligible for the New State Pension?

• To be eligible for the new state pension, you must have reached state pension age and have paid at least 10 years of national insurance contributions.

• You'll need to pay National Insurance and build up qualifying years if you're employed and earning over £242 a week from one employer or if you're self-employed and are paying NI contributions accordingly.

• If you earn less than £242 a week, you might not pay NI contributions but may still get a qualifying year if you earn between £123 and £242 a week from one employer.

How Much Will You Get?

• At time of recording (2023-24 tax year), those entitled to the maximum state pension will receive £203.85 per week based on having built up 35 years of full National Insurance contributions or credits over 52 weeks of the year.

• There are scenarios where you might get more than this amount, such as having additional State Pension benefits or deferring taking it beyond your state pension age.

How Does It Keep Pace with Inflation?

• The state pension benefits from something known as the triple lock which means that the amount received increases each year in line with either average wage growth, inflation as measured by the consumer prices index (CPI), or 2.5%.

• The most recent increase was a big one with our current high rates of inflation seeing the new state pension payments increase by 10.1%.

When Will You Get It?

• Both women's and men's State Pension Ages were aligned together at 65 in November 2018.

• The state pension age has been increasing due to life expectancy increasing and many more people spending more time in retirement.

Other Topics

• Other topics covered in the video include how to claim it, how it is paid, how to build up a full entitlement, what about the old state pension, topping up your state pension if you're not entitled to the full amount, whether it is taxed when being paid, delaying your state pension if you don't want it yet, getting your own personal State Pension forecast and whether you can rely on it.

How to Claim Your State Pension

This section explains how to claim your state pension and when you should apply for it.

Applying for State Pension

• You do not get your state pension automatically when you hit state pension age.

• You have to apply for it, usually three or four months before you become eligible.

• You will receive a letter notifying you of what you need to do.

• Apply online using the code provided on your letter or by phone or post.

Payment of State Pension

• The state pension is paid every four weeks straight into your bank account of choice.

• You are paid in arrears, so the first payment arrives within five weeks of reaching your state pension age.

• The day your pension is paid out depends on the last two digits of your National Insurance number.

Building Up Your Entitlement

This section explains how to build up a full entitlement and qualifying years needed for a state pension.

Qualifying Years Needed

• You need at least 10 qualifying years to have any state pension at all.

• To get the full entitlement, you'll need 35 qualifying years.

• These don't have to be consecutive; they just need them in total.

Qualifying Year Criteria

One of these following things needs to have applied:

• Working and paying National Insurance contributions

• Getting National Insurance credits (e.g., unemployed, ill, parent, carer)

• Paying voluntary National Insurance contributions

Old State Pension and Contracting Out

This section explains how the old state pension system affects new pensions if contracted out.

Old State Pension System

The previous system hasn't been forgotten about entirely and still has a bearing in some cases on the new state pension. If due to your NI record prior to 2016, you would have had a higher pension on the old regime; you'll be entitled to something called a protected payment.

Contracting Out

Contracting out affects the calculation of what you would have got on the old regime. If this affects you, ask for a calculation to be sent to you, which explains this in more detail and shows you some examples.

Topping Up Your State Pension

This section explains how to top up your state pension if you're not entitled to the full amount.

National Insurance Credits or Voluntary Contributions

• You may get National Insurance credits if you were ill or unemployed.

• You can make voluntary National Insurance contributions to catch up.

• Weigh up the cost of these contributions versus the benefit of the higher lifetime pension amount.

Taxation of State Pension

This section explains whether state pensions are taxed when paid.

Income Tax Applicable

• The short answer is yes; it is seen as income and subject to income tax.

• If it's your only source of income, it will sit within your tax-free personal allowance.

• A full entitlement to the new state pension falls under this level and is not actually taxed in this scenario.

Other Income Sources

If you have other income sources (e.g., private pensions, rental income), be aware that you are likely to have to pay tax on them.

State Pension and Personal Forecast

In this section, Tom Morgan discusses the State Pension and how to get a personal forecast.

Deferring State Pension

• Deferring your state pension increases it by 1% for every nine weeks deferred.

• The extra amount is paid with your regular state pension payment.

• Example: If you were due to get £203.85 a week, the full new state pension, by deferring for one year you'll get an extra £11.82 a week.

Getting Your Personal State Pension Forecast

• Go to the government website and search for "State Pension forecast" or use this link.

• Click on "Start Now" and follow the steps to create a Government Gateway user ID if you don't already have one.

• Doing this forecast will likely answer all of your big questions about how much State Pension you could get, when you can get it, and how to increase it if possible.

Relying on State Pension

• The future of the state pension is uncertain as it's subject to change due to political decisions.

• It's recommended not to rely solely on the state pension for retirement income but instead see it as an additional source of income.

• Building other sources of income such as private pensions, investments, or property is advised.

Additional Information

• For more information on private pensions and how they work, check out Tom Morgan's complete beginner's guide here.

• The government website is a great resource for all things related to State Pensions.