The new State Pension – transitional issues

The new State Pension (nSP) was introduced on 6 April 2016 for people reaching State Pension age from that date. People who had already reached State Pension age continue to be entitled to a State Pension under the old rules (Pensions Act 2014, s1).

The old State Pension had two tiers:

• the basic State Pension, which is paid at a flat-rate (£137.60 pw in 2021/22) for those with at least 30 ‘qualifying years’ – of National Insurance (NI) contributions or credits); and
• the additional State Pension, which is partly earnings-related. It was provided through the State Earnings-Related Pension Scheme (SERPS) between 1978 and 2002 and, from 2002 through the State Second Pension (S2P). It was possible to contract-out of the it into an occupational or personal pension which met set requirements. An individual who was contracted-out paid a lower rate of NI in recognition of the fact that they were foregoing additional State Pension rights for that period.

The nSP is single tier. It is set just above the basic level of means-tested support – £179.60 pw in 2021/22.

People with no National Insurance (NI) record before 6 April 2018 will need 35 qualifying years to get the full amount of the NSP when they reach State Pension age. For people with an existing NI record before that date, transitional arrangements apply and their existing NI record to April 2016 is taken into account. In these cases, there is not usually a direct relationship between the number of NI contributions and the amount of State Pension they receive. (This is because the nSP incorporates the additional State Pension – which was earnings-related, built up over working life and from which you could contract-out). A check was made in April 2016 to ensure individuals would receive at least as much from the nSP as they would have done from the old system based on service to that date, provided they satisfied the minimum requirement for at least 10 qualifying years (PQ 170651, 5 September 2018).

The Government intended that individuals should qualify on the basis of their own contribution record, so the special rules allowing people to derive or inherit State Pension entitlement on the basis of the contribution record of a (former) spouse or civil partner ended, with some transitional protection.

Because the nSP is single-tier, there is no option to contract-out of it. This means that since 6 April 2016, employees who were previously contracted-out have paid the same rate of NI and build up State Pension rights on the same basis as other employees.

Information about the new State Pension is on Gov.UK and in DWP leaflet Your State Pension explained (April 2021). Detailed guidance is in chapter 74 of DWP’s Decision Makers’ Guide.

This note discusses transitional arrangements and impact. For more on the background to the new State Pension, see Library Briefing Paper CBP-6525, The new State Pension – background (August 2016).