What do I need to know about the flat rate State Pension?
THE backbone - or at least a core part - of many people's retirement income, the State Pension is changing from April 2016.
The introduction of the new flat rate pension scheme will see the end of the second state pension and the State Earnings Related Pensions Scheme (SERPS).
But what if we were paying towards one of those schemes, and what is the flat rate based on?
This guide should help explain how the new pension is different, who's entitled to it, and how much we can expect to receive.
How much will I get?
The flat rate pension is designed to simplify the state pension scheme. As well as replacing the basic and additional state pensions, it'll see an end to "contracting out" and part of the pension credit.
The current basic state pension of £115.95 a week, plus any extra credits and payments, will be replaced by a simple flat rate of around £151.25 a week.
That's the theory anyway. The reality is different, as not everyone will get this amount.
An investigation by This is Money in 2014 concluded that only between 27% and 58% of those retiring after 2016 would get the full amount.
Fund management group, Hargreaves Lansdown, predict that just 45% will be entitled to the full flat rate pension.
Conversely, some people - primarily those who paid for a second state pension - may be entitled to more than the flat rate of £151.25 (see why below).
The Government hasn't helped in this respect, as their propaganda implies that the new flat rate applies to everyone, which it clearly doesn't.
To be entitled to the new state pension, a person must reach the new state pension age on or after April 2016, and have 35 qualifying national insurance years.
Note that this is five more years than required for the current basic state pension.
Someone who doesn't have the full 35 years will be unlikely to receive the full amount. Those with fewer than 10 years won't be eligible for any pension at all.
People who have somewhere between 10 and 35 years will receive a proportional amount of the flat rate.
So, for example, someone with 25 years of NI payments would theoretically get 25/35 of the full amount, equivalent to £108.04 per week.
The Government say it'll be possible for people who don't have the full 35 years' worth of contributions to buy extra years to add on to their NI record - but we don't yet know how much this will cost.
According to their website, "each qualifying year on your National Insurance record after 5 April 2016 will add about £4.32 a week (which is £151.25 divided by 35) to your new State Pension."
Each extra year of contributions would therefore be worth about £225 a year in pension income.
Those who can't afford to buy extra NI years have the option of delaying their pension. Under the new flat rate scheme, they'll receive a 5.8% increase in the pay out for every year they delay taking the pension.
This means that a person who would be due to receive £132 a week could boost that to £140 a week instead if they delayed taking their pension by a year.
Traditionally, people who couldn't work - such as carers or those with a disability - have been able to top up their basic state pensions by paying into a state second pension.
As we've mentioned already, the new flat rate pension will replace both the basic state pension and the additional state pension.
But people who've paid into a state second pension, and would therefore be entitled to more than the flat rate, will still get their money, in the form of a "protected payment".
Many people are worried by the extra five years they need in NI contributions. Women who've taken career breaks to have children will be particularly affected.
According to figures from the Department for Work and Pension, 400,000 people are expected to claim the new state pension next year. But of these, only 20,000 women will get the full flat rate.
Other people are concerned by the detail regarding "contracted out" workers, who look likely to lose out at least slightly under the new system.
"Contracted out" workers are those, who at some point in their careers, paid reduced NI contributions so that they could pay into a pension run by their workplace instead.
The trade off for paying less NI was that they wouldn't receive extra benefits from the state, such as the state second pension.
The idea was that the private pensions were so good, any employee paying into one wouldn't need extra Government benefits.
That, of course, hasn't always turned out to be the case.
Contracting out itself is being abolished: from next April anyone who is currently contracted out - usually those who work in the public services - will be contracted back in and will see their NI contributions go back up to the standard rate.
Under the flat rate scheme, the Government say that people who have contracted out at some point in their lives will lose some of their state pension - because they've paid lower contributions.
The reduction in the amount such people receive in their state pension will depend on how long they contracted out for and when.
The hope is that although such people might not get the full flat rate amount, they shouldn't be any worse off than they would have been had the current system continued.
How to apply
Those who are eligible should check their pension histories; those aged 55 and above can apply for a personalised state pension statement.
This will show whether we can expect any deductions, say for years when we may have been "contracted out", or for a lack of NI contributions.
Most people should find that the Government will contact them four months before they reach state pension age to start the process.
But because the pension isn't paid out automatically, if for some reason they don't, it's vital to get in touch - which can be done online.
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