The single-tier pension will be introduced on 6 April 2016 and will apply to anyone reaching State pension age on or after that date - that is;
- men born after 5 April 1951; and
- women born after 5 April 6 April 1953.
Any State pension entitlement accrued in the years before the implementation of the single-tier pension will be recognised when establishing an individual's single-tier pension entitlement.
Anyone who reaches State pension age before 6 April 2016 will continue to receive their State pension in line with the current rules.
Calculating Single Tier Pension
The full weekly rate of single-tier pension payable from 6 April 2016 will be set at a level just above the basic level of means tested support. £144 a week (in 2012/13 terms) was used in the Government's White Paper for illustration purposes.
Under the new rules, an individual will need 35 qualifying years* of National Insurance contributions (NICs) or credits to get the full weekly rate of single-tier pension. This is 5 qualifying years more than currently required to get the full basic State pension.
* A qualifying year is a tax year in which a person received (or was treated as having received) earnings of at least 52 times the weekly lower earnings limit for the year.
There's also a minimum. To get any single-tier pension at all you'll need at least 10 qualifying years. This is a big increase from the current minimum of just one qualifying year under the existing State pension rules.
Anyone with between 10 and 35 qualifying years will get a proportionate amount of single-tier pension.
Those who started their working life before 6 April 2016 may, of course, have built up some State pension entitlement already - this is protected by calculating a “foundation amount”.
Foundation amount
To establish an individual's foundation amount, a comparison has to be made between:
- what they've built up under the current rules (as if reaching State pension age in April 2016); and
- what they'd get if the single-tier rules had started at the beginning of their working life.
The foundation amount will be the higher of the two figures.
When working out the foundation amount, a deduction has to be made to reflect that lower NICs have been paid during any periods of being contracted out of SERPS or S2P.
If the foundation amount is under £144 a week, additional entitlement will be built up for any further qualifying years, at a rate of £4.11 a week for each qualifying year (i.e. £144/35) up to a maximum of the full single-tier pension. Those who are due to get less than the full single-tier pension may be able to top it up by paying voluntary NICs to fill gaps in their NI record.
If the foundation amount is more than £144 a week, the individual will get the full single-tier pension plus a ‘protected payment' (which represents the amount in excess of the full single-tier pension). There will be no scope to build up any more single-tier pension.
Spouses Pensions
The single-tier pension has been designed to ensure that, in the long term, the majority of people will be able to get the full single-tier in their own right. So, eventually, the single-tier pension will purely be based on an individual's own record of National Insurance contributions (NICs) and credits.
However, under the current system, it's sometimes possible for a widow, widower or former civil partner to inherit some State pension or for someone to get some State pension derived from the NIC record of their current or former spouse or civil partner. As a result, some individuals may be expecting or even relying on getting this - for example, women who elected to pay reduced rate NICs.
Transitional rules will be introduced allowing some individuals to still get inherited or derived State pension:
Deferring the Single Tier Pension
It can be deferred and taken as an increased weekly pension. If the claim is deferred for at least nine weeks, the original pension due at State Pension age will be increased by 1% for every nine weeks deferred - equivalent to an increase of around 5.8% for each full year deferred.
But there will no longer be an option to take deferred State pension payments as a lump sum.
Also, it won' be possible for someone reaching State pension age before 6 April 2016 to become eligible for the single-tier pension by deferring their State pension - they'll still receive their State pension under the current rules.