Will You Get The Full Flat Rate State Pension?

If you think the British State pension will pay you the flat rate £144 a week when the new rules kick in from April 2016, you may be under a big financial misapprehension.

That indexed £144 magic number only applies under certain conditions – and if you do not qualify you will receive a lesser amount that could throw out all your retirement planning calculations.

The new state pension will start from April 2016, when the current state pension, additional state pension and SERPS will be scrapped.

Although the pension is touted as £144 a week, because of indexation, the likely starting figure is expected to be £155 due to the rising cost of living.

But, according to research by the Institute of Fiscal Studies, thousands of pensioners expecting a windfall are in for a shock.

Qualifying pension years

The institute has calculated that as many as seven out of 10 pensioners will not qualify for the full flat rate amount.

Although politicians and the headlines have shouted out how much the new pension is worth, some of the small print has been overlooked.

The main point to consider is the number of qualifying years you have accrued towards your state pension entitlement.

The current rules call for 30 years of qualification. This could be built up through years of working, or credits for disability or women taking time off to bring up a family, for instance.

The new state pension rules have upped the ante to 35 qualifying years, so many people approaching retirement many not have enough years under their belt to claim the full flat rate pension.

Retirement cash shortfall

People without enough qualifying years will get a chance to ‘buy’ extra years, but the cost is not yet known and they will have to work out whether to keep their cash or pay extra into the national insurance system for an increased pension.

Checking how many qualifying years you have is easy. You can go to the government web site to make an application or call the future state pension helpline on 0845 3000 168

Understanding how much state pension you are likely to receive is a cornerstone of financial planning for retirement.

Falling short in your calculations by £30 a week leaves a shortfall of £1,560 in expected cash each year, and over 20 years of retirement, that adds up to £31,200 of lost spending power.

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