State pension: Your sum could be affected by workplace or personal savings – check now
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State Pension payments offer stability for people who are approaching their retirement, and can often be a key source of funding for later life. The new state pension sum is currently set at £179.60 per week, although the amount someone actually receives will be based on their National Insurance contributions. Most people will want to maximise the amount they get out of their state pension each year.
This is because many have worked hard across their lifetime and want to enjoy a comfortable retirement with a financial buffer.
So many individuals may be concerned to hear their state pension sum could be impacted by certain workplace or personal savings arrangements.
As a result, it will be important to check what category one falls into to avoid being disappointed later down the line.
The Government has outlined a concept known as the “starting amount” which is vital to understand.
A National Insurance record before April 6, 2016 is used to calculate a person’s starting amount.
It will be the higher of either:
- The amount a person would receive under the old state pension rules
- The amount a person would get if the new state pension had been in place at the start of someone’s working life
Once this is understood, it will be easier to understand the idea of the state pension amount.
The starting amount of an individual could be reduced in certain circumstances which are worth noting.
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Firstly, if someone was in an earnings-related pension scheme at work, such as a final salary or career average pension before April 6, 2016, they could have a deduction.
In addition, if someone had a workplace, personal or stakeholder pension before April 6, 2012, their starting amount could also be affected.
Certain individuals may have paid lower National Insurance contributions and paid into one of these pensions instead.
This was a common practice which was known as being “contracted out” of the Additional state pension.
It is likely to have affect most people who have been in work throughout their lifetime.
Individuals will be able to check if they were contracted out by looking through old documentation.
Old payslips, for example, are likely to be able to issue help, even through the digits contained within the document.
The Government website explains: “You were contracted out if the National Insurance contributions line has the letter D or N next to it. You were not contracted out if it has a letter A.”
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If it is not clear, or a person does not have this kind of information, Britons do not have to panic.
People will be able to check with their pension provider to see if they have been contracted out in the past.
If someone has lost contact with their pension, they could use the Pension Tracing Service to provide help.
The rules, however, surrounding this kind of arrangement have changed within recent years.
When the new state pension was introduced on April 6, 2016, individuals will no longer be contracted out.
As a result, they are likely to pay more National Insurance – but no more than the standard amount.
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