Examples of transitional arrangements with state pensions

Dani (born 1955) has been contracted in for her whole working life from 1976. She reaches state pension age in 2021. From her 40 years of NI contributions up to 2016, she has built up entitlement to a full Basic State Pension and £95 a weel1 in Additional State Pensions. Her starting amount is therefore the better of:

  • £210.95 (in full Basic State Pension + Additional State Pension)
  • £164.35 (in full single-tier pension from 40 years NI)

which gives £210.95.

As this exceeds the maximum single-tier pension, it is retained for Dani as a protected payment of £59.70 above the full single-tier.

Dani will pay National Insurance contributions between 2016 and 2021 but will not see her pension entitlement increase correspondingly.

George (born 1965) has been contracted out for his whole working life from 1986. He reaches state pension age in 2032. From his 30 years of National Insurance paid up to 2016, he has built up entitlement to a full Basic State Pension but no Additional State Pension. His starting amount is therefore the better of:

  • £119.30 (in full Basic State Pension)
  • £69.64 (from 30/35ths of the full single-tier pension less a £602 deduction reflecting contracted out service)

which gives £119.30.

This is less than the full single-tier amount, meaning that George can build up additional entitlement through National Insurance contributions.

As each year will add £4.56 to his pension, he needs to add another nine years of NI contributions between 2016 and 2032 to qualify for a full single-tier pension.

The full single-tier pension is intended to be increased in line with the triple lock formula, subject to continued political commitment.

Anyone with a protected payment will see the protected amount of their pension (ie the amount by which their pension exceeds the maximum single- tier pension) increase only in line with the Consumer Prices Index.

[1] Amounts for Additional State Pension and corresponding deductions in these examples are purely illustrative.
[2] This number is illustrative, reflecting the complexities involved in calculating Additional State Pension and contracted out amounts

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