New State Pension (NSP)

In April 2016 the way the state pension is calculated changes. Where today you have the basic state pension and the additional state pension, going forward there will only be one pension the ‘new state pension’ (NSP).

To ensure that you are not disadvantaged and the state does not over pay, a complicated formula based on your National Insurance Contribution (NIC) history is used. In essence the Department of Work and Pensions (DWP) sums the amount of time that you were contracted out of the additional pension (Serps / S2P) and makes an adjustment.

For example if you had worked for 30 years as a high rate payer the additional pension could be as high as £165 per week. Conversely If you had contracted out and was a low earner you might end up with no additional pension.

In today’s money the basic state pension is worth £115.95 to someone who has paid NIC for 30 years.

Therefore your pension would be for someone with 30 qualifying years, between £115.95 and (£115 + £165) £280 per week.

The DWP uses data provided by HMRC, therefore if you want to get an accurate forecast you need to request a ‘statement of account’ from HMRC. They can be contacted on 0300-200-3500 and lines are open from 8am.

There is not much you can do apart from ensuring your HMRC records are correct and purchasing more class 3 NIC years to increase your qualifying years up to 30. However, this depends on when you plan to retire. The DWP have a helpful call centre (0345-300-0168) where you can request a forecast and discuss your NIC history.

You will not be able to top up your NSP above £151.25. However, after April 2016 any additional NIC years will increase any pension shortfall by £4.32 per week (1/35th). Therefore, it is important to request a forecast now so that you can plan ahead.

Good luck.