I have paid full National Insurance for coming up to 48 years, and when I retire at 66 I will have paid for 51 years. (I’m a woman born in the 1950s who has been robbed of her state pension at the age of 60.)
I note that in previous articles about the old and new state pensions, you say that the final pension you get will be based on the *higher* of two amounts calculated under the two systems.
So for example, someone who had 44 years of contributions and might have got a state pension under the old rules of say £200 per week, and who would only get £159 per week under the new rules, will get the higher of these two amounts – they won’t have anything taken off them.
Rule change: Under the transition from the old to the new state pension, you are meant to get the higher of the two amounts calculated – so could weekly payouts hit £200 after a long career? (Stock image)
Since I will have paid full National Insurance for 51 years, and assuming the rules don’t change again, could I be entitled to a £200 per week state pension?
SCROLL DOWN TO FIND OUT HOW TO ASK YOUR PENSION QUESTION
Steve Webb replies: When the new state pension was introduced in April 2016 it was often talked about as being a ‘flat rate’ pension, currently worth just under £160 per week.
There was quite a lot of fuss about the fact that some people would get less than this flat rate amount, at least in the early years of the new system.
As regular readers of this column will know, this is generally because they were a member of a company or private pension arrangement which was ‘contracted out’ of part of the state pension system in the past.
Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below
But what has received less attention is that many people will get more than the ‘flat rate’ amount, at least for those retiring in the early years of the new system.
The key date in all of this is 6 April 2016. At that point, the Department for Work and Pensions will perform two calculations.
The first is to work out how much state pension you would have got under the ‘old’ rules.
This is a basic state pension of roughly £122 per week for those with 30 years or more in the system, plus an earnings-related ‘SERPS’ pension depending on how much you earned and whether or not you were ‘contracted out’.
The second calculation is how much you would be entitled to under the ‘new’ system.
In this case it would be a full state pension of around £160 per week for those with 35 years in the system, minus an (often large) deduction for any past period of contracting out.
Your pension as at 6 April 2016 is based on the *higher of these two amounts*. This is called your ‘starting amount’.
The good news for someone in the situation that you describe is that if they had already built up a state pension in excess of the flat rate figure of £160 per week – which could even be as much as £200 per week – then that will indeed be the basis for their final pension.
How to check your state pension forecast
The only thing that has changed for them is that any years they work from 2016/17 onwards will no longer add any more to their state pension – it is effectively capped at the level built up by 2016, apart from annual inflation increases.
For those whose April 2016 starting figure is below the flat rate of £160 per week, they can still add to their starting amount by years of contributions from 16/17 onwards until they reach the flat rate. But these people can never exceed the flat rate figure.
The idea of these rules is to try to strike a balance between being fair to those who had already built up more under the old system than the new flat rate would provide, whilst trying to get more and more people moving to the simple flat rate system as quickly as possible.
ASK STEVE WEBB A PENSION QUESTION
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Since leaving the Department of Work and Pensions after the May 2015 election, Steve has joined pension firm Royal London as director of policy.
If you would like to ask Steve a question about pensions, please email him at email@example.com.
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0300 123 1047.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
If you have a question about state pension top-ups, Steve has written a guide which you can find here.
TOP SIPPS FOR DIY PENSION INVESTORS