Are you about to reach your State Pension age? If yes, this is for you. That’s especially true now because the old rules, including basic State Pension and Additional State Pension, have changed and are complicated. With complex rules and regulations, it is highly difficult to understand the amount you would get until you reach the pension age. 

A State Pension change occurred on April 6, 2016, affecting individuals reaching pension age on or after this date. This change applies to men born on or after April 6, 1951, and women born on or after April 6, 1953.

The new State Pension will allow people to know the amount they are likely to get at a much younger age. This will help them better understand their retirement planning and savings.

Let’s get started on exploring details about State Pension 2024.

What Is The State Pension?

It is a payment from the government at regular intervals that an individual in the UK can claim upon reaching the State Pension age. The amount that every individual gets differs and is dependent on their National Insurance record.

For most individuals, the State Pension is just a part of their retirement plan. They might also have other sources of money, like workplace tension, other types of pensions, and even their earnings.

How Does The New State Pension Work?

As informed earlier, there has been a State Pension change. The new State Pension depends on your National Insurance records. If you do not have any record of National Insurance before April 6, 2016, you will require 35 years to qualify for the entire amount of the State Pension, only when you reach the qualifying age of State Pension. 

Most people usually would have made National Insurance contributions before April 6, 2016. Thus, when they are of age, the new State Pension will consider the National Insurance record before and after April 6, 2016. Provided individuals meet the 10-year minimum qualifying period, as per the new rules, the State Pension amount received by you for April 6, 2016 contributions under new State Pension is not less than the amount you would have received under old rules. 

Under the new rules, you can receive a State Pension only if you have a minimum of 10 qualifying years of National Insurance records.

These can be from before or after April 6, 2016; they don’t have to be 10 consecutive years.

Under the New State Pension, your amount will usually be based on your National Insurance record only.

Define Qualifying Years

State Pension qualifying year is made from combined earnings, self-employment, voluntary contributions, and National Insurance credits.

It is made up of –

• Earned more than £242 a week (2024-2025) from one employer and made National Insurance contributions.
• Employed people earning from one employer between £123 and £242 a week (2024 to 2025) and considered to have paid National Insurance contributions.
• You are self-employed and paying Class 2 National Insurance contributions at £3.45 weekly from 2024 to 2025.
• Make National Insurance contributions voluntarily, which is £17.45 weekly in 2024-2025.
• Receiving National Insurance credits (mentioned below)

Under certain circumstances, you get National Insurance credits. This mostly happens when your earnings are low. For instance, 

• Caring responsibilities, like when you receive Child Benefits for kids under 12 years.
• Working age benefits include Jobseeker’s Allowance, Working Tax Credit, or Employment and Support Allowance.

For child benefits, you can get National Insurance credit only if you apply for the benefits, even if you decide not to get any payments. If you are entitled to any credits, you must apply as early as possible because backdating credits is usually impossible.

New State Pension 2024

You will be eligible for the new State Pension amount depending on your National Insurance record. The Pension Credit standard minimum guarantee is the established basic level for the full amount of the new State Pension. The 2024-2025 rate for the new State Pension full amount is £221.20 weekly.

Details of the New State Pension Starting Amount 

If an individual has qualifying years on their National Insurance record as of April 5, 2016, the government calculates a ‘starting amount’ for their new State Pension.

• The amount you would have received under the old State Pension system until April 6, 2016.
• The amount you would receive based on your record until April 6, 2016, if the new State Pension had been implemented at the beginning of your working life.

Your State Pension starting amount can be equal to the full amount, less than the new State Pension, or more than it.

• When the starting amount is below the new State Pension full amount

After April 5, 2016, for every qualifying year added to your National Insurance record, a certain amount is added to the starting amount. The amount added is about £6.32 weekly. This is £221.20 divided by 35. This is done until the new State Pension full amount is reached or the age of the State Pension is reached. Whichever happens first is taken into account.

• When the starting amount is more than the new State Pension full amount

You receive the higher amount once you attain the State Pension age. This case is possible only when the individual has an Additional State Pension. The protected payment is the full new State Pension amount minus the starting amount.

• When the starting amount is equal to the new State Pension’s full amount

You can receive this amount when you reach the full new State Pension age.

Way to find out the amount you can get

You can use the service ‘Check your State Pension’ to get an online forecast of your State Pension for 2024. You will get personalised information in the forecast. This will include the estimate of the State Pension amount at that particular point as well as your State Pension age. It will also mention if it is possible to increase the amount. You can also view your history of National Insurance contributions in the forecast.

All details are available on the official website of the UK government.

Details About your National Insurance record and the State Pension

As mentioned earlier, the State Pension amount depends on the National Insurance record. The record is dependent on the contributions made by an individual to national insurance. Getting National Insurance credits also helps build the record.

Paying National Insurance contributions

You need to pay your National Insurance contributions while working and earning over a minimum limit, which for 2024-2025 is £242 a week. 

If your income lies in the range of £123 and £242 weekly for 2024-25 from a single employer, your National Insurance record may still be building up.

These are for employed people only. For self-employed State Pension and National Insurance records, please refer to the section titled ‘The new State Pension for self-employed people. ‘

Points to note – 

• If you’re employed, your employer will deduct a certain percentage of your wage as National Insurance contributions from your pay. This contribution is then paid to the HM Revenue & Customs (HMRC). This amount will be reflected on the wage slip.
• Self-employed individuals are accountable for making national insurance contributions directly to HMRC.

Even if you continue to work, when you reach the State Pension age, you will no longer be required to make National Insurance contributions.

Getting National Insurance credits

You can get National Insurance credits if you are unable to make National Insurance contributions due to various reasons, such as illness, caring for another adult or child, etc.

If you’re not paying National Insurance contributions because, for example, you can’t work due to illness or caring for a child or an adult, you may be able to get National Insurance credits. With the help of these credits, you can strengthen your National Insurance records. This way, you can safeguard your entitlement to a State Pension. Thus, ensure that you are getting National Insurance credits even when you cannot contribute to National Insurance.

You can get automatic National Insurance credits with benefits like Child Benefit (for a child below 12 years of age), Employment and Support Allowance, or Jobseeker’s Allowance. In certain circumstances, you need to apply. You need to apply for National Insurance credit, especially for Child Benefit, even if you have not received any payment. 

Other examples where you need to apply for National Insurance credit are –

• If you are caring for another adult for at least 20 hours a week, you must apply for Carer’s Credit.
• Caring for a child under 12 who is related to you means you need to apply for Specified Adult Childcare credits.
• Spouses or civil partners of people in HM Forces, and when they have been posted abroad since 1975, and you have accompanied them on these postings, you are eligible to apply for National Insurance credits.

How can there be a gap in my National Insurance record, & What do I do about it?

There can be a gap in your National Insurance record if you have not been paying adequate National Insurance contributions or did not get National Insurance credits against a qualifying year. For instance, if you have been working and living overseas, or your income is 2024-25 is lower than £123 a week, or you have been unemployed and have not claimed any benefits, or if you are self-employed but due to less profits, you have been unable to pay National Insurance, there can be gaps in you National Insurance contributions.

However, if you have been claiming benefits, such as child care benefits for a child under 12 years old, but not paying National Insurance contributions, you may get credits, and there will be no gaps.

Sometimes, even in the presence of gaps in National Insurance records, you may not be required to do anything, and you can be eligible for full State Pension 2024. If gaps exist in your National Insurance records, you can make voluntary National Insurance contributions. This will help cover the gaps. Remember, gaps can impact the amount you get in the new State Pension.

So, in short, if you are not working or have not been receiving credits due to a gap in your National Insurance records, you can make voluntary contributions to National Insurance to build your record. 

Are you Reaching the State Pension age but not claiming a new State Pension? What happens to the money, and is there more money when it is claimed? 

Claiming the new State Pension when you reach the State Pension age is not mandatory. Taking the State Pension later or deferring claiming also means you can get an additional State Pension whenever you claim. This additional amount can be taxable and is usually paid with the State Pension. The extra amount you get solely depends on the duration you put off claiming it. The longer the duration, the higher the amount.

You only benefit by deferring your State Pension claim for at least 9 weeks. Each 9-week period deferred results in a 1% increase in your claim. Therefore, by deferring, you can accrue approximately 5.8% more annually. For further details on deferring your State Pension, consult with a knowledgeable finance or accounting advisor.

The new State Pension for self-employed people

If your profits are above a specific amount as a self-employed, you can pay Class 2 National Insurance contributions. It applies for profits earned between £6725 and £12570 in 2024-25. 

Class 4 National Insurance contributions are paid by self-employed when the profits are above £12570 in 2024-25.

Class 2 National Insurance contributions by self-employed individuals will be treated the same under the new State Pension, even if they were made before April 6, 2016. 

As a member of a workplace pension scheme 

The old State Pension consists of two parts: the basic State Pension. The second part is the Additional State Pension, the State Second Pension, or SERPS. 

If you are a member of a ‘defined benefit’ pension scheme that is related to a final salary or is a salary-related pension scheme, the Additional State Pension may have contracted the Pension. Before April 2012, a few stakeholder pension schemes and a few personal pension schemes.at work have most likely been contracted out. 

If, before April 6, 2016, an individual has been contracted out of the Additional State Pension, the Department of Work & Pension under the UK Government has made the necessary deductions to compute the starting amount for their new State Pension. The starting amounts are deducted – one per the old rules and one per the new State Pension rules.

The deductions are based on the scheme type. That’s because your National Insurance contribution payments would have been at lower rates. Also, a certain percentage of the National Insurance contributions were paid to your personal pension or stakeholder pensions rather than the Additional State Pension.

However, please note that starting April 6, 2016, the old contracting-out rules are no longer valid.

In case You Qualify only for a small State Pension amount or no State Pension?

In many cases, you can get income-related benefits like the Pension Credit. It works as a weekly income for you. This is available if you have attained the Pension Credit qualifying age and get a guaranteed minimum amount. For a couple, the amount you receive is based on your income, savings, and investments.

State Pension as Inheritance from a Spouse or Civil Partner

Individuals reaching the State Pension age starting April 6, 2016, will get their State Pension calculated based on their National Insurance record. The details of how the record can be increased have been provided under the topic, New State Pension 2024.’

There is a single exception, though. That’s for widows and married women – people who have opted for Reduced Rate Election or Married Woman’s Stamp (old name). This is a reduced rate paid to National Insurance contributions. When a woman chooses a Reduced Rate Election may get a new State Pension that is dependent on different rules. However, the choice works when the lady gets more than what she is eligible to get as per her national insurance record. With these rules of Reduced Rate Election, the lady does not require 10 qualifying years to get a State Pension of her own.

Her State Pension will be the same as – 

• A married woman whose husband is of the State Pension age will receive £101.55 a week, which is the lower introductory rate of State Pension of 2024-25.
• If she is widowed or divorced, she will get £169.50 a week, the basic State Pension 2024-25 rate. She is also eligible for an additional State Pension if she made any contributions before April 6, 2016. 

For the Reduced Rate Election qualification, the lady’s pension should have started 35 years before April 5, 2016, before reaching the State Pension age.

Inheritance of spouse’s or civil partner’s State Pension

Widowed or civil partners have a right to the additional payment over and above their new State Pension, which could be the result of Additional State Pension or protected payments.

This is possible only when the deceased was of the State Pension age or died before April 6, 2016, or was of the State Pension age and died after April 5, 2016, under State Pension age.

If your late partner or spouse was of the State Pension Age before April 6, 2016, and had not claimed their State Pension as a window or a civil partner, you are eligible to inherit either a lump-sum payment or an extra State Pension amount.

In the case of a remarriage or a new civil partnership

In this case, if you remarry or find a new civil partner, you will not be eligible to inherit your dead spouse or partner’s State Pension. This applies if you are under the age of State Pension.

In the case of a divorce or if the civil partnership is dissolved

A ‘pension sharing order’ can be passed by the courts in the case of divorce or when a civil partnership is dissolved. The decision can relate to sharing a protected payment or Additional State Pension with their spouse or civil partner. The amount of the State Pension will be accordingly reduced from their former spouses or civil partners, and the amount will be paid as an additional payment over and above their State Pension.

Way to increase the amount in retirement

For most people, the State Pension is a way of saving for retirement. There are plans to increase the amount so that you have more retirement income. There are different plans. You can speak with professionals to explore the right ways.

What happens when you work past the State Pension age?

If you plan to continue working after reaching the State Pension age, you are no longer required to pay National Insurance contributions. Today, there is no fixed retirement age anymore or an age at which one can stop working. People have the right to take up work flexibly and request the same so that your employer considers it. This gives you more choices about when you can retire and how. So, instead of retiring at 55, if you choose to retire at 65, the pension amount can be easily increased by 60%.

Conclusion

Understanding the complexities of the State Pension system is important, especially with recent changes. You must know about your entitlements, contributions, and potential benefits requires careful planning and expert advice. For tailored guidance, consider consulting accounting professionals like TaxCan and Cangaf Accountants. Their expertise can help you maximize your State Pension benefits and ensure your retirement planning aligns with your financial goals.