Your state pension – sorting fact from fiction – Michael Lansdell

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  Posted by: The Probe      3rd December 2019

‘Pensions’ is one of those topics that people feel they should know about. However, most of you won’t find pensions the most thrilling of subjects and will probably admit to zoning out whenever it comes up. Never mind the confusion around options, saving for a retirement that seems a long way off may be far down your current list of priorities.  

But your pension (and generally, your plan for retirement) isn’t something you should be neglecting. Also, once you start busting the myths around pensions, the whole area is easier to understand. Planning for the kind of retirement that you want, in an ideal world, can be exciting too – honest!

Any good retirement plan should be flexible, but built on solid foundations.
For most of you, this means a state pension – but this can seem mired in confusion, especially since a new system was introduced three years ago. So, here’s a guide to understanding it…

 

The basics

The old state pension became a single-tier system in April 2016. Anyone who reached state pension age (SPA) on or after 6 April 2016 is entitled to claim under the new system, but single tier doesn’t mean single rate. 

 

How do I find out my rate?

Your record of National Insurance Contributions (NICs) determines your rate. To receive the full state pension, you’ll need 35 years of NICs or National Insurance credits. If, when you reach SPA you have less than 35 years, the amount will be pro-rata. The minimum number of qualifying years is 10. 

 

Is it paid automatically?

In a word – no! You have to claim it.

Can I defer? Does this mean I get a lump sum when I do claim?

Yes, you can defer. You can defer even if you’ve started receiving it. One reason for considering deferral may be that you’re still working at SPA and paying higher-rate tax. So, deferring might be sensible for tax reasons. This works best if, once you do stop working, you expect to then pay the basic rate of tax.

Don’t get too excited about the thought of a lump sum! Only if you reached SPA before 6 April 2016, can you receive the arrears in one go. If that doesn’t apply to you, the amount you get when you claim will increase above the single-tier amount at 5.8%, for each full year that you defer. 

 

Is there any way to increase the amount I get?

Possibly, if you paid into the earnings-related state second pension (SERPS).

A word of caution! The government will compare what you would have got under the old and new systems and pay you the higher amount. This means that you may end up getting less if you opted out of SERPS, or have less than 35 years’ NICs credits at SPA. If you opted out, but have more than 35 years’ NICs credits at SPA, there is still a possibility of boosting your amount, though. This would need to be verified through the proper channels.

 

What about my spouse/civil partner’s state pension? Do I inherit that should something happen to them?

Unless they reached SPA before April 2016, no. This is a change from the old system.

There is a lot more information available from the Pension Service. Or, talk to a specialist accountant, like the expert team at Lansdell & Rose. We love advising dentists and dental practice owners about all aspects of personal finance, including pensions. When you get the best advice, you will fully understand your options and can make important decisions with confidence.

 

For more information please visit www.lansdellrose.co.uk
or call Lansdell & Rose on 020 7376 9333.

 


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