New State Pension
The State Pension has changed for all those members reaching their State Pension Age after 6 April 2016. This affect’s men born after 6 April 1951 and women born after 6 April 1953, reflecting the respective state pension ages of men (65) and women (63) at that date.
The new State Pension is a single-tier benefit which will replace both the Basic State Pension and the State Second Pension, and its predecessor schemes. However, transitional provisions mean that the entitlements to these benefits of the current workforce are still taken into account.
The full new State Pension is £203.85 per week as at the 6th April 2023. . To gain entitlement to the full amount a person entering the workforce will require 35 years of NI contributions or credits. Each year of contributions qualifies for £5.29 a week, subject to a minimum of 10 years to qualify for any benefit.
Your National Insurance record before 6 April 2016 is used to calculate your ‘starting amount’. This is part of your new State Pension. Your starting amount will be the higher of either:
- the amount you would get under the old State Pension rules (which includes basic State Pension and Additional State Pension)
- the amount you would get if the new State Pension had been in place at the start of your working life
But, for employees who in their working lives have had periods when they were contracted-out of State Second Pension (or SERPS), in both cases, the starting amounts will be reduced to reflect that. This is because during periods of being contracted-out lower NI contributions have been paid and it is assumed you have earned replacement pension benefits in an employer scheme or a personal pension.
The new State Pension will be increased on the same basis as the current State Pension – i.e. in line with the higher of average earnings increases, CPI inflation or 2.5% each year. However, protected amounts in excess of the standard level will only be increased in line with CPI inflation.
Like the current State Pension, the new State Pension will only be payable from State Pension Age.
There is information on the Government website. The publication 'Your State Pension explained' can be accessed here and members can also apply for a state pension statement here.
The change does not increase the total pay-out of state pensions and so there are as many losers from the changes as there are gainers amongst the non-retired workforce who are affected. It does nothing to alter or to improve things for pre-2016 pensioners.
The biggest losers are those people who have full NI contribution records and who have been contracted-in for long periods. They would, in many cases, have got a much higher benefit than the new State Pension will deliver.
State Pensions are a defined benefit and the maximum scope of that benefit is being substantially reduced by this change, making employees ever more dependent on uncertain defined contribution pension schemes.
The largest gainers will tend to be those groups who would not have acquired any or much State Second Pension. These would include the self-employed and those with low earnings/broken careers (many of whom are women now approaching retirement).
Unite would have preferred to see an increase in the Basic State Pension and the continuation of an earnings-related state pension to allow people to build up extra state pension on top of that. The negative impacts of the new State Pension could only be mitigated if it is set at a much higher level than the Government has set it at currently.