State Pension – The New and the Old
State Pension rose its head in one of the recent R06 case studies, so here are the details for both the pre- and post-2016 schemes. This is useful reading for those who are studying for any of the CII AF1, AF5, CF1, R01, R03, R04, R05, or R06 exams.
This article is relevant to examinable tax year 2019/20.
Basic State Pension
Basic State Pension was available for those reaching State Pension age before 6 April 2016.
Someone qualified for a full basic State Pension if they had at least 30 qualifying years; if someone had fewer than this, they received a proportion of the full amount.
Those reaching State Pension age before this date could also be receiving Additional State Pension – for example, State Earnings Related Pension Scheme (SERPS) or State Second Pension (S2P).
The New State Pension
The new State Pension applies to those reaching their State Pension age on or after 6 April 2016.
To qualify for any of the new State Pension, we need 10 qualifying years (either of contributions or credits). To get the maximum amount, we will need at least 35 qualifying years – again through contributions or credits.
Anyone who hadn’t reached their SPA on the 6th April 2016 had a foundation or starting amount calculated; this is the higher of their pre-April 2016 entitlement OR their new State Pension entitlement. If this figure works out as lower than the full amount of new State Pension, it can be increased through buying more qualifying years. Where it is higher, the difference is the ‘protected payment’, and this is paid on top of the new State Pension.State Pension rose its head in one of the recent R06 case studies, so here are the details for both the pre- and post-2016 schemes. Click To Tweet
Deferring the State Pension
A significant change in the rules affected the way State Pension can be deferred. Those individuals, who reached SPA before April 2016, could defer their State Pension in return for an increased income or a lump sum. Deferral had to be for at least 5 weeks and in return, the pension amount increased by 1% for every 5 weeks deferred, which worked out as an increase of 10.4% per year. If someone deferred for 12 months, a lump sum could be chosen instead with interest added at 2% above the bank’s base rate.
Anyone reaching SPA since 2016 has only been able to defer for an increased income; the lump sum option was withdrawn. The deferral period was also increased to at least 9 weeks, with the rate of increase similarly reduced (1% for every 9 weeks); this works out as an increase of just under 5.8% for each full year of deferral.
What happens if someone dies during deferral?
Finally, under the old rules, if someone died during deferral, then their spouse or civil partner could inherit subject to various conditions set by the DWP. Under the post-2016 rules, it is not possible for a survivor to inherit deferred State Pension; although, the estate may claim up to 3 months’ arrears of their State Pension.
Grab the resources you need!
If you’re studying for your CII R04 exam, and you’re wanting to fit in some extra practice, grab our free taster to try out one of Brand Financial Training’s mock exam papers for yourself. Click the link to download the R04 mock exam taster now!