The new state pension was supposed to be simpler, clearer, and higher than the basic state pension it replaced. But some people who have paid the 35 years of National Insurance contributions needed for a full pension are being told they will get less – sometimes as little as the old state pension – when they reach state pension age.
About 1.5 million people who have paid enough National Insurance contributions and who reach state pension age before 2027 will not get the full £168.60 per week.
They are people who had a job with a good pension scheme – often in the public sector – that paid them a pension related to their salary. They paid lower National Insurance contributions because they were “contracted out” of part of the state pension called SERPS.
Some people who paid into a personal pension were also “contracted out”. When the new state pension was introduced, the Coalition Government decided it would not be fair if this group, who had paid lower NI contributions, got the same pension as those who paid the full amount.
So it makes a deduction from their state pension which, in theory, will be made up by the pension they receive from their work or personal pension. The deduction can be up to £39.40 a week, the difference between the new state pension and the old, currently £129.20 a week
The good news is that this deduction can be reduced by paying National Insurance contributions on the years from 2016/17 up to the year before they reach state pension age.
People in work, some carers,those seeking work, and some others may get these contributions paid or credited to them. Other people can buy them. Anyone reaching state pension age this tax year can buy up to three years’ contributions for 2016/17, 2017/18, and 2018/19.
Each year they buy will cost £740 but will boost their pension by around £250 a year,index-linked for life. A bargain.
More information from the DWP Pension Centre (0800 731 0175), the Pensions Advisory Service (0800 011 3797), or paullewismoney.blogspot.com search “Target 168”. Paul Lewis explains why some people won’t be getting the pension they’re expecting.