New State Pension
Coverage
Mandatory insurance
- Employees and self-employed over the age of 16 and earning over a certain threshold amount must make NICs.
- Certain classes of people are automatically credited with having made NICs, despite not falling within the above category and despite no actual financial contributions having been made. These include those who: earn above a lower earnings limit, but below the primary earnings threshold1; receiving statutory maternity, paternity or adoption pay; claiming Child Benefit for children under 12; receiving Carer’s Allowance; and those receiving Employment Support Allowance (i.e. those who have a disability or health condition that affects how much they can work).
Voluntary insurance
- Voluntary contributions can be made to fill gaps in one’s NIC record. These can usually be made for the last six years only.
Financing
General finances
- PAYG-financed from insurance contributions (funded through the National Insurance Fund).
- NIF may be supplemented by a Treasury Grant – a sum from general taxation – if Her Majesty's Treasury considers it expedient to do so (limited to 17% of outgoing payments).
Contribution rates to mandatory insurance
- Employee NICs are a fixed share (12%) of weekly or monthly gross earnings over a primary earnings threshold (GBP 183 a week for 2020/2021); additional rates may apply after reaching an upper earnings limit.
- Employer NICs are a fixed share (13.8%) of weekly or monthly gross earnings over a secondary earnings threshold (GBP 169 per week for 2020/2021).
- Self-employed NICs depend on profits made. For 2020/2021, the threshold is an annual profit of GBP 6,475, at which point NICs amounting to GBP 3.05 per week will be due. If the profits are greater than GBP 9,501 but below GBP 50,000, then 9% of this will be due in NICs. 2% of any profits exceeding GBP 50,000 will be due in NICs.
Administration
- The state pension service administers the new state pension and the public pension system in general. It is part of the Department for Work and Pensions.
Qualifying Conditions
Qualifying conditions
- Reaching state pension age. State pension age increased to 66 for both genders as per October 2020 (and, subject to review will increase to 67 by 2028); minimum insurance period: 10 qualifying years of NICs.
- The individual must make a claim for the new state pension, it is not automatic.
Early retirement
- Individuals cannot claim the new state pension before reaching state pension age.
Deferred retirement
- Individuals can defer claiming the new state pension for as long as they please with positive (permanent) adjustments to pension benefits (1% for each nine weeks of deferral).
Combining employment & retirement
- One can claim the new state pension while one is still working. This will not reduce the amount of pension benefits received.
Benefits
Pension benefits
- Benefits take the form of a flat-rate that is based on the number of NICs that an individual has made.
- The amount of benefit received is not affected by the size of one’s contributions.
Benefit calculation
- The number of NICs is counted in terms of ‘qualifying years’. To be credited with one such year an individual must make, or be credited with having made, sufficient NICs in that tax year.
- The full rate is available to those who have made or been credited with 35 or more years of NICs. With each qualifying year lower than this (but above the 10 years required for eligibility) the flat-rate is proportionally reduced.
- The flat rate was GBP 155.65 per week when it was introduced in April 2016 and increases every year by whichever of the following is the highest: 2.5%, average increase of earnings, or inflation (this is the so-called triple lock). The 2020 flat rate is GBP 175.20 per week.
Taxation and social security contributions
- New state pensions are seen as income and taxed according to normal income tax rules, although individuals will no longer have to pay NICs.
Coverage
Financing
Administration
Qualifying Conditions
Benefits
Mandatory insurance
- Employees and self-employed over the age of 16 and earning over a certain threshold amount must make NICs.
- Certain classes of people are automatically credited with having made NICs, despite not falling within the above category and despite no actual financial contributions having been made. These include those who: earn above a lower earnings limit, but below the primary earnings threshold1; receiving statutory maternity, paternity or adoption pay; claiming Child Benefit for children under 12; receiving Carer’s Allowance; and those receiving Employment Support Allowance (i.e. those who have a disability or health condition that affects how much they can work).
Voluntary insurance
- Voluntary contributions can be made to fill gaps in one’s NIC record. These can usually be made for the last six years only.
General finances
- PAYG-financed from insurance contributions (funded through the National Insurance Fund).
- NIF may be supplemented by a Treasury Grant – a sum from general taxation – if Her Majesty's Treasury considers it expedient to do so (limited to 17% of outgoing payments).
Contribution rates to mandatory insurance
- Employee NICs are a fixed share (12%) of weekly or monthly gross earnings over a primary earnings threshold (GBP 183 a week for 2020/2021); additional rates may apply after reaching an upper earnings limit.
- Employer NICs are a fixed share (13.8%) of weekly or monthly gross earnings over a secondary earnings threshold (GBP 169 per week for 2020/2021).
- Self-employed NICs depend on profits made. For 2020/2021, the threshold is an annual profit of GBP 6,475, at which point NICs amounting to GBP 3.05 per week will be due. If the profits are greater than GBP 9,501 but below GBP 50,000, then 9% of this will be due in NICs. 2% of any profits exceeding GBP 50,000 will be due in NICs.
- The state pension service administers the new state pension and the public pension system in general. It is part of the Department for Work and Pensions.
Qualifying conditions
- Reaching state pension age. State pension age increased to 66 for both genders as per October 2020 (and, subject to review will increase to 67 by 2028); minimum insurance period: 10 qualifying years of NICs.
- The individual must make a claim for the new state pension, it is not automatic.
Early retirement
- Individuals cannot claim the new state pension before reaching state pension age.
Deferred retirement
- Individuals can defer claiming the new state pension for as long as they please with positive (permanent) adjustments to pension benefits (1% for each nine weeks of deferral).
Combining employment & retirement
- One can claim the new state pension while one is still working. This will not reduce the amount of pension benefits received.
Pension benefits
- Benefits take the form of a flat-rate that is based on the number of NICs that an individual has made.
- The amount of benefit received is not affected by the size of one’s contributions.
Benefit calculation
- The number of NICs is counted in terms of ‘qualifying years’. To be credited with one such year an individual must make, or be credited with having made, sufficient NICs in that tax year.
- The full rate is available to those who have made or been credited with 35 or more years of NICs. With each qualifying year lower than this (but above the 10 years required for eligibility) the flat-rate is proportionally reduced.
- The flat rate was GBP 155.65 per week when it was introduced in April 2016 and increases every year by whichever of the following is the highest: 2.5%, average increase of earnings, or inflation (this is the so-called triple lock). The 2020 flat rate is GBP 175.20 per week.
Taxation and social security contributions
- New state pensions are seen as income and taxed according to normal income tax rules, although individuals will no longer have to pay NICs.
1 If one earns below the lower earnings threshold, then one is neither required to make NICs nor is one credited as having made them, but one can still make voluntary contributions.
Legal Basis: Pensions Act 2014; Pensions Act 2011; Pensions Act 2008; Pensions Act 2007; Pensions Act 1995; Social Security Act 1993; Social Security Contributions and Benefits Act 1992; State Pension Regulations 2015.