piggy bank_images of moneyThe current basic state pension is £113.10 per week which is the equivalent of £5,881.20 per annum.  This basic amount is increased if you also have an Additional State Pension or a Graduated Pension.

The basic amount increases each year by the “triple lock“, which is the greater of price inflation (measured by Consumer Price Index), wage inflation or 2.5%.

However, all this is due to change for anyone reaching state pension age on or after 6th April 2016. For detail about when you will receive your pension see “Do you know when you will receive your state pension?

The current state pension (and its three component parts mentioned above) will be replaced by a Flat Rate Pension of £145 per week which is the equivalent of £7,540 per annum.

This amount will also increase by the “triple lock” mentioned above.

So far, so good. This is an increase of 28% on the current basic level, so we should all be happy. Or should we?

Under current pension rules, to be eligible for the full basic state pension an individual needs to have worked or been credited with National Insurance contributions for a minimum of 30 years.  If there is less than 30 years contribution the amount of pension is pro-rated. There is no minimum number.

However, to be eligible to receive the higher amount of the Flat Rate Pension an individual now has to have paid or been credited with 35 years’ worth of NI. Any period less than this will be pro-rated, as now.  However, in addition, the minimum number of years will be in the region of 7-10 years. If and individual has paid or been credited with less than this minimum figure the flat rate pension will be nil.

NI Substitution

Under the current rules it is possible to substitute the NI record of one spouse with that of the ex-spouse if that gives a better record. This will no longer be the case under the new rules.

In many instances one party (often the divorcing wife) will have insufficient NI to allow her to receive the full flat rate figure.  Up until now she has been able to substitute her ex-husband’s NI record and receive a full state pension.  From 2016 this will no longer be the case based on the existing proposals.

State pension entitlement will therefore have to be reviewed as part of the financial settlement, since it cannot be assumed that the pensions will be equalised through substitution.  The Flat Rate Pension is worth circa £170,500- a very significant number.

To obtain information about your state pension entitlement and how many qualifying years have been met, you can complete a form BR19 available online from http://www.direct.gov.uk/pdfs/state-pension-statement.pdf  The information should be returned within 10 days of DWP receiving the form.

If you are going through divorce and would like help with your finances please contact me on 01932 698150.

 photo credit: flickr/images of money