News update: State pension changes
The recent changes to state pension affects everyone; because it is not HMRC-specific, neither HMRC nor ARC have made any comment on it. ARC also has to be careful to note that that any statements made on pension issues are not pension or financial advice. That disclaimer equally applies to this article. This information was prepared at the request of Nottingham centre, so thank you to them for the request and this will hopefully raise awareness amongst those of you who were not aware of the changes or their impact.
One of the clearest explanations of the pension changes can be found at here.
The new state pension is £155.35 per week maximum; whether you receive the full amount depends on your National Insurance payment history. Staff employed by HMRC prior to April 2016 were previously contracted out by virtue of our employers pension scheme, meaning we paid a reduced rate of NI to reflect the fact that as we have a private pension we were unlikely to need top ups to the old basic state pension. For those who have paid contracted out rates while working for HMRC, our NI contributions mean the starting point for our state pension as of April 16 is the equivalent of the old basic state pension, £119.30.
For each qualifying year after 5 April 2016 we will accrue additional pension. The formula for working out your expected pension is
So, for someone with eight qualifying years (since April 2016) the numbers are:
If you are more than nine years away from state retirement age, by the time you reach it you will have ‘caught up’ and receive the full amount of the new state pension.
If you have less than eight years before state retirement age, you will have less qualifying years and so less addition to the old basic. For example with three years to state retirement age you might expect a state pension of:
If you follow the link to the .gov website you can send off for personal illustrations. This is something members who are planning or even considering retiring in the next nine years may consider helpful.