Some pensioners may be receiving hundreds of pounds less than someone who is one day older every month due to the date of their birth, as one expert explains.
Those nearing state pension age generally understand that 35 years of National Insurance contributions or equivalent credits will entitle them to a weekly sum of £221.20 once they reach state pension age. This is the full new state pension amount, but many pensioners and some yet to retire are receiving significantly less.
In 2016, state pension rules were altered, resulting in two separate systems: the new state pension and the previous ‘basic’ state pension. The latter currently provides a maximum of £169.50 per week, leaving recipients over £200 short of the new state pension amount each month.
Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group, elaborated on this to Reach: “Slightly confusingly, in the UK we have two different state pensions running concurrently.
“Those who reached state pension age before 6 April 2016 receive the old or ‘basic’ state pension, currently a maximum of £169.50 a week, and those who reached state pension age after 6 April 2016 receive the ‘new’ state pension, currently a maximum of £221.20 a week.” This would be a woman born before 6 April 1950 or a man born before 6 April 1945. Those getting the new state pension are a man born on or after 6 April 1951 or a woman born on or after 6 April 1953.
“At first glance this might seem unfair, however the system was changed to reduce complexity, modernise the system and equalise the system between different groups of people.”
The previous state pension system also had additional benefits for those on basic state pension like State Earnings-Related Pension Scheme and the State Second Pension.
The expert continued: “Over the years these became hard for people to understand and also disadvantaged some groups, mostly women and low-income workers. They found it harder to build up pension benefits due to taking career breaks often for childcare and lower earnings.”
To address the concerns of those disadvantaged groups, the new state pension was introduced, which allows individuals to accumulate funds through their National Insurance record. This can be achieved by paying National Insurance via earnings, making voluntary contributions, or earning National Insurance credits.
These credits are granted to individuals on certain benefits, such as Child Benefit or Carer’s Allowance, and to those who may be unable to work, including individuals who have been unjustly imprisoned.
Despite the significant difference in the two state pension rates, both are safeguarded by the triple lock mechanism, Mike confirmed. This ensures that the pension amount will rise annually by whichever is highest among three measures: inflation, average wage growth, or 2.5%.
If you’re a woman born after 5 April 1950 and before 6 April 1953 the full basic State Pension you can get is £169.50 per week. If you’re a man born after 5 April 1945 and before 6 April 1951 the full basic State Pension you can get is £169.50 per week.
