Most people now covered by the new State Pension will have built up some pension under the old state scheme. To ensure they did not lose out under the switch to the new system, there are transitional rules. Broadly, they work as follows. On 6 April 2016, two calculations were made: first, the pension you had built up so far under the old system was worked out using the old system rules, and second, your qualifying years so far were used to calculate what your pension would have been if the new system had applied all along. In both cases, the calculation includes a deduction if you had been contracted out of the additional State Pension under the old system. You were then credited with the higher of the two amounts, and this is called your ‘starting amount’.
If your starting amount on 6 April 2016 was higher than the full rate of the single-tier pension, your State Pension will be this higher amount. This amount is increased both up to the time you reach State Pension age and then once it starts to be paid. To do this, your starting amount is divided into two parts: the full-rate new pension, which currently increases each year in line with the triple lock, and the excess, which is your ‘protected payment’ and increases each year in line with price inflation. You cannot build up any more State Pension because you are already over the maximum full rate.
If your starting amount on 6 April 2016 is less than the full rate of the new pension, you can continue to build up more new State Pension until you reach the full rate. The whole of your pension increases each year by the triple lock.
CASE STUDY
On 16 April 2016, under the old state system rules Roshni, then aged 58, had built up a combined state basic and additional pension of £166.22 a week. On that date, based on her NICs to date but the new state system rules, she would already have been entitled to the full-rate new pension, which was then £155.65. This means her starting amount was £166.22 and, since it was higher than the full new rate, she cannot build up any more State Pension. Since then, £155.65 of Roshni’s State Pension has been increasing each year in line with the triple lock, and the excess – her protected payment of £10.57 a week – in line with price inflation. With these increases, by 2023/24, her expected weekly State Pension stood at £216.92.
Deferring your State Pension
You do not have to start your State Pension as soon as you reach State Pension age. You can put off the start – or cancel it (but only once) – and earn extra once it is paid. This can be useful if you’re carrying on working and so do not need your State Pension yet or would lose a lot of it in tax.
If you defer the new State Pension, it is increased by 1 per cent for each nine weeks you defer it, i.e. an increase of 5.8 per cent a year. Ignoring tax, you would need to survive just over 17 years to get back as much in extra pension as you give up during the delay until it starts. If you defer the old State Pension, the increase is bigger at 10.4 per cent a year and you’d only need to survive 9 and a half years to get back as much as you had deferred. With the old State Pension (but not the new one), you also had the option to receive a lump sum rather than extra pension.
You can continue deferring your pension for as long as you like. The extra money will be paid to you when you eventually decide to claim your pension. The resulting extra pension is increased each year in line with prices and is taxable in the usual way. More information on deferring your State Pension is available online (Directory, p 32).
Advice about State Pensions and benefits
Bear in mind that, in addition to State Pension, you might be eligible for some of the state benefits described in Chapter 2. Information about all types of State Pensions and benefits is available at GOV.UK.
Any time and as often as you like before reaching State Pension age, you can get a statement of how much your State Pension is likely to be based on your NICs record to date. See the Directory (p 32) or call 0800 731 0175.
The Pension Service – part of the Department for Work and Pensions (DWP), the government department responsible for State Pensions and many state benefits – handles claiming and payments, and will explain what he state will provide when you retire and can let you know what pension-related benefits you may be entitled to. Visit gov.uk/contact-pension-service or phone 0800 731 0469.
If you think a mistake has been made, you can ask DWP to reconsider the Pension Service decision and, if you are still not satisfied, you then have the right to appeal and have your claim looked at by an independent tribunal. This is a formal process and you may want the help of a trained representa-tive from, say, Citizens Advice or another benefits advice agency.