Knowing how the new scheme will impact on your retirement is crucial. Here at Aston Black Accountants, we have put together a short blog on what you can expect to deal with.
If you’re already receiving a state pension then nothing will change for you. You’ll continue to receive money in the same way as you’ve always done. However, if you want to top up what you are already entitled to, then you can begin making National Insurance contributions again. In most cases, this will result in a further £25 a week.
However, for everyone else (excluding women born before 6 April 1953 or men born before 6 April 1951) the new pension scheme will be obligatory. Even if you’ve already started to accumulate money for a state pension, the amount you are entitled to will now be calculated under the new rules.
Here’s where things get a little trickier. The new pension scheme bases the amount you’re paid on your National Insurance (NI) record. For those in employment, there will no longer be the option to base payments on your earnings.
In order for employed workers to receive the maximum state pension, they will need an NI record that shows at least 35 years of contributions. As of this year, the total amount you can expect to receive each week will be £155.65. Of course, as ever, receiving the full amount all depends on a range of criteria.
Whilst the self-employed are still free to save money how they wish, they will need to have made at least 10 years of Class 2 NI contributions to qualify for a state pension. Talking with a small business accountant can help you make sense of exactly how much you are entitled to through this scheme. A bookkeeping service will keep your finances on track and give you a clearer idea of how you can hold onto your earnings.
The New State Pension will be staggered and dependent on the amount of time you have made NI contributions for. To receive the maximum weekly payment, you will need to have registered 35 years of contributions. Those who have amassed more than the equivalent of £155.65 a week will then be able to keep the difference as a protected payment. However, you won’t be able to build up any more State Pension.
The same goes for those who have built up an amount equal to the New State Pension. You won’t be able to add any more to your payments, but you will receive the maximum amount.
If you fall into this category, then you are likely to see the most change to the way your pension is handled. If the amount you have currently accrued is less than the maximum New State Pension, then you will receive weekly payments equal to this amount. However, even if you’ve reached the 35 year NI threshold, you can continue to contribute in order to receive a higher payment.
On the other hand, you may only just be starting out in the world of work. In this case, you will need to:
This is the scenario for all workers unless you qualify for reduced rate NI contributions. You can also defer your State Pension for as long as you like, at an increase of 5.8% a year. Unfortunately, you will no longer be able to take this interest as a lump sum at any point.