State pension reform: the single-tier pension

You may remember that we have previously talked about Class 3A NIC. This is effectively a transitional change, as the single-tier reforms will restructure the State Pension into a simple flat-rate amount from 2016 at the earliest.

Those over State Pension age when the reforms are implemented will continue to receive it in line with existing rules. The single-tier pension will:

• be set above the basic level of means-tested support (the amount hasn't been set);• replace the State Second Pension, contracting out and certain out-dated additions, such as the Category D pension and the Age Addition;• require 35 qualifying years of NIC or credits for the full amount, with pro-rating where 35 years is not achieved. There will also be a minimum qualifying period of between seven and ten qualifying years;• be based on individual qualification, without the facility to inherit or derive rights to the state pension from a spouse or civil partner; and• continue to allow people to defer claiming their state pension (but not in return for a lump sum) and receive a higher weekly state pension in return.

Transition

A transitional regime will:

• translate people's pre-implementation NIC records into a simple single-tier starting amount - the 'foundation amount';

• value an individual's NIC record using single-tier rules as at the implementation of the single-tier pension. Where an individual has previously been contracted out of the additional State Pension, a deduction will be applied; and

• as a safeguard, the Government will check to see if the rules of the current system would give a better outcome. The higher valuation will then become that individual's foundation amount.

For those with a foundation amount which is more than the full level of the single-tier pension, these people will receive the difference between their foundation amount and the full single-tier amount as an extra payment on top of the full single-tier weekly amount.

The Government will also carry out a review of the State Pension age every five years, based around the principle that people should maintain a specific proportion of adult life receiving the state pension. The first review will take place in the next Parliament.

It may be that some of your older clients get contact from the DWP as part of the above process but the point is essentially the same - get your clients to check that their State pension entitlement is up to date and correct. The following website might be a good start - https://www.gov.uk/state-pension-statement