The switch to the new state pension in April 2016 brought some significant changes. The headline news was the introduction of a new flat rate to replace the old multi-layered system. For many people it will mean a welcome increase in their state pension entitlement as the old basic rate of £111per week increased to the new flat rate of £159.55 per week (2017/18 rate) for those with 35 years of National Insurance contributions.
However if you’re getting divorced and haven’t yet reached state pension age the news might not be quite so good and there could be some unwelcome surprises. There are three key changes you should be aware of:
- Removal of the state second pension
- An increase to 35 years of NI contributions or credits to qualify for a full state pension
- A spouse can no longer rely on the NI record of the other spouse to boost his/her entitlement.
Until April 2016 it was possible for a pension sharing order to be made against the second tier of the state pension, known as the Additional State pension or second state pension. The introduction of the new flat rate means the whole amount will in future be counted as basic state pension, and not available for sharing (needless to say it’s more complicated as some people will have a “protected amount” which will be paid on top of the flat rate, and this can still be shared).
The increase to 35 years of NI contributions (or credits) will also be detrimental for many, especially women who may have a broken employment history. It’s vital to find out what your entitlement will be as your state pension will be reduced if it’s less than the full 35. For example if you have 20 years of contributions or credits, your state pension would be 20/35ths of £159.55pw ie £91.17pw.
If you will be short of the 35 years you can make voluntary back-dated contributions to help plug the gap. It’s usually possible to pay voluntary contributions for years missed in the previous six tax years. The amount that would be due for the 2017/18 tax year is £14.25pw – £741 for the year. This could be a wise investment and the divorce settlement could include a lump sum to help buy back missing years.
The good news is that finding out what your state pension is has never been easier or quicker and a pension forecast and NI record can be easily obtained on-line at https://www.gov.uk/check-state-pension. You will need a Government Gateway account to log in or alternatively it can be requested by phone.
The old system allowed a spouse with an incomplete NI record to claim a full state pension based on the NI contributions made by their former spouse or civil partner during the time they were married or in a civil partnership, as long as that person had made full contributions.
For anyone reaching state pension age after April 2016 this is no longer the case and they can only use their own record. This will potentially affect far more women than men as it is usually women who have given up careers to bring up the family.
Hence why it is so important to check your own record and take professional financial advice.
Information in this article is for information only and does not constitute advice and should not be construed as such. Professional advice should be sought.
Karen McGrath, Chartered Financial Planner with Skerritt Consultants Ltd