The rules regarding entitlement to the UK State Pension have just changed so if you are not fully aware of the changes, and how they might affect you, and studies show that few people are, you need to read on.
Anyone who has worked in the UK will have paid National Insurance contributions, either as a deduction from earned income under PAYE, or as a specific payment if they were classed as self-employed. This money builds up entitlement to the UK’s basic State Pension. Under the new rules that have just come into effect everyone needs to have made a minimum of 10 years worth of contributions to receive any payment at State retirement age and 35 years’ of contributions, known as “qualifying years” are now required in order to receive the full Te State Pension.
If you are not currently resident in the UK you have the option to make voluntary contributions in order to increase eventual income but note that this does not offer entitlement to any other State benefits such as use of the NHS.
The UK Government has made several announcements about phasing out the cheaper Class 2 payments for expats and this was supposed to end in April 2019. Perhaps surprisingly, this change seems to be on hold but expats are still being guided towards making Class 3 payments. There is eligibility criteria that applies for each class and only people who worked in the UK immediately before leaving are permitted to pay Class 2 contributions so that will not be everyone.
In the tax year Class 3 contributions are £14.65 and Class 2 are £2.95. As well as making payments going forward it is also possible to back date contributions by paying a lump sum for up to six missing years in most cases although some people may be given the option to go back further.
If you do not know how years of pension eligibility you have built up you can request details, together with a forecast of what you will be entitled to at your State retirement age, by completing and returning the UK government form BR19. This is available online (see link at the end of this article) but should be returned by post. It is currently taking two to three months to get a response telling you how much you are entitled to receive at State retirement age in today’s terms.
A study by insurance company Aegon found that some 57% of respondents had underestimated the number of qualifying years needed to fully fund their state pension. The sooner you find out the sooner you can take action. The full basic State Pension is currently worth £164.35 per week (under the new rules for men born after 6th April 1951 and women born after 6th April 1953) and whilst this is not a huge amount on its own, it can make a difference to your overall financial situation at retirement.
Women are particularly affected by the changes due to career breaks after having children and as women generally have far less private pension provision, or savings, it is especially important that they are aware of the changes and take action.
Generally speaking it is considered worthwhile to maximise the basic State Pension if you intend to retire in the UK, EEA (European Economic Area), or other places with a reciprocal agreement, where the income payable from State pension age is indexed in payment. I do not agree that the State Pension will be phased out. A bit of scaremongering that benefits no one.
Brexit could also have an impact on the State Pension. At the moment, any time spent working in the EEA and a handful of other countries, including America, can count towards the 10 qualifying years for a UK state pension but this may change if the reciprocal agreements are not maintained. In respect of this we’ll have to wait and see.
Between April 2016 and November 2018, the State Pension for women will increase gradually to 65. Between December 2018 and October 2020 the State Pension age for both men and women will increase gradually to 66.
From 2020 the standard UK retirement ages will be increasing further, as announced a number of years ago. From 2020 the age from which people can draw the state pension increases to 66 years and it will increase steadily thereafter. Use the link at the end of this article to can find out when you can draw your State Pension.
The amount that anyone will receive from the UK State Pension, will not be enough to support them in a comfortable retirement so it is important that we all make additional private provision. I will be writing more about UK pension schemes. and retirement planning generally. but if you have any queries about your retirement plans or any aspect of personal financial planning please contact me at email@example.com
Obtain a form to request a State Pension forecast UK Government publications BR19
Check the age from which you can draw the UK State Pension https://www.gov.uk/state-pension-age
This article was last updated in January 2019.