Less than half of pensioners retiring between 2016 and 2020 are set to receive the full new flat-rate state pension amount.
Approximately 3.5 million workers will reach their state pension age between 2016 and 2020 but of these, just 45% will be entitled to receive a full new state pension of at least £148.40, meaning almost two million pensioners will get less than they might have been led to expect by the government, according to figures uncovered by financial adviser firm, Hargreaves Lansdown.
The majority of people who do not qualify for the full pension are those with interrupted National Insurance contributions, especially mothers and the self-employed. Danny Cox from Hargreaves Lansdown says: “People retiring from April 2016 will not be worse off under the new system during the transitional period and many will be better off. However they might not receive the full £155 a week if they do not have 35 years National Insurance service history. And 45% of people won’t do in the first five years from April 2016."
The new flat-rate basic state pension will come in April 2016 at around £155 a week. This replaces the currently complex two-tier system. The current basic state pension is £113.10 a week plus people can have a higher pension based on earnings such as through SERPS and S2P.
Eventually, lower earnings will be better off with the new flat rate system and higher earners will be worse off.
To know where you stand, Danny recommends requesting a state pension forecast and checking whether there are opportunities to top up your NI record by paying additional voluntary contributions. “It’s also important to see when this will be paid, as the state retirement age is moving back to 68. The alternative is to save more into a company or private pension,” he adds.
- Read our guide to the new pension changes being introduced this April, plus 5 essential money tips every woman should know about!