The Difference Between the Basic and New State Pensions

State pensions can be tested where you might not always expect them to be. Clearly they can be tested in the CII R04 exam and some knowledge might be needed for AF7, but they can also appear in R06, AF1 and AF5.  Here, we look at the differences between the basic State pension and the new State pension. 

THIS ARTICLE IS RELEVANT TO EXAMINABLE TAX YEAR 2019/20.

For those who reached SPA before 6 April 2016

These individuals were entitled to the basic State pension and possibly Additional State pension (ASP) as well.  To qualify for the full basic State pension, you had to have at least 30 qualifying years (defined as 52 weeks of Class 1 and/or Class 2 NICs paid in a tax year). Those with fewer than this were credited with 1/30^th for each full qualifying year.  The basic State pension for 2019/20 is £129.20 per week, which increases with the triple lock guarantee.

ASP was available to employees and is paid on top of the basic State pension (but does not increase with the triple lock guarantee) and might comprise the:

• Graduated Retirement Benefit accrued between 6 April 1961 – 5 April 1975
• State Earnings Related Pension Scheme accrued between 6 April 1978 – April 2002, and
• Second State Pension accrued between 6 April 2002 to 5 April 2016

Remember that many people would have ‘contracted out’ of these schemes: in return for lower rates of Class 1 NICs no entitlement to ASP was accrued.

For those reaching SPA after 6 April 2016

Individuals reaching State pension age after 6 April 2016 are entitled to the new State Pension as long as they have a minimum of 10 qualifying years (or have been credited with this).  The full rate of new State pension is currently £168.60 per week.  To gain the full amount, 35 qualifying years are needed (in either NI contributions or credits).  A higher amount may be possible if someone accrued pre-6 April 2016 additional State pension.

Those people who hadn’t reached State pension age on the 6^th April 2016 had an amount calculated known as the starting amount (or foundation amount). This was done to calculate the higher of: 

• Entitlement under pre-6 April 2016 rules or
• entitlement under the new State pension (worked out as if this had been in place at the start of their working life)

Where someone was contracted out a deduction was applied known as the rebate derived amount. Where someone’s starting amount was higher than the full amount of new State pension in 2016 (£155.65 per week), they get the full new State pension and keep any amount over this as a protected payment.  Where someone’s starting amount was lower than the full amount of new State Pension in 2016, they can add qualifying years to their NI record between 2016 and State pension age to increase their entitlement.

Grab the resources you need!

If you’re studying for the next sitting of the CII R04 exam, and you’re a little nervous about it, grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the R04 mock paper taster now!

Alternatively, you can download a taster for AF1, AF5, AF7 or R06 if you are preparing for any of those exams.