The new State Pension – background

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 (£119.30pw in 2016/17) for those with at least 30 ‘qualifying years’ – of National Insurance (NI) contributions or credits); and
• the additional State Pension (aSP), 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 aSP 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 aSP rights for that period.

The nSP is single tier. It is set just above the basic level of means-tested support – £155.65pw in 2016/17.

Thirty-five ‘qualifying years’ are needed for the full amount. Those with fewer than 35 qualifying years receive a pro-rated amount, subject to them having at least ten qualifying years. 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 from April 2016, employees who were previously contracted-out start to pay the same rate of NI and build up State Pension rights on the same basis as other employees.

There are transitional arrangements to deal with past contribution records – for example, people who had already built up more than the full amount of the nSP in April 2016 and people who had been contracted-out during working life.

This notes looks at the implementation of the nSP, the transitional arrangements for dealing and the discussion of gainers and losers.

Information about the new State Pension is on Gov.UK and in DWP leaflet Your State Pension explained (April 2016).

This note looks at the development of the proposals for a single-tier State Pension. A separate Briefing Paper – CBP-07414 The new State Pension – transitional questions  (August 2014) focuses on how the reforms affect individuals in transition. The reform background is discussed in more detail in SN 5787 State Pension reform – 2012 (January 2013). The timetable for increases in the State Pension age is discussed in Library Briefing Paper SN-06546 (March 2016).