Many people will have reached State Pension Age or have qualifying years before 6 April 2016. This article explains the state pension provision that existed at that time.
- The Basic State Pension and the Additional State Pension
- Qualifying years before 6 April 2016
- Contracting out to pay lower National Insurance contributions
The Basic State Pension and the Additional State Pension
The system that applied before 6 April 2016 mainly consisted of two state pensions: the Basic State Pension and the Additional State Pension.
The Basic State Pension is similar to the new State Pension, it is a flat-rate pension benefit (subject to different rules).
The current full rate of Basic State Pension is £169.50 per week. This will increase in April 2025 to £176.45 per week.
This increase of £361 per year was announced in the budget on 30 October 2024.
The Additional State Pension mainly refers to two earnings-related pension benefits that applied between 1978 and 2002 (SERPS) and between 2002 and 2016 (the State Second Pension).
These were paid in addition to the Basic State Pension. Together, the Basic State Pension and the Additional State Pension were more generous, on average, than the new State Pension.
If you reached State Pension Age before 6 April 2016, then you will have qualified for Basic State Pension and Additional State Pension in line with the rules for those benefits.
Qualifying years before 6 April 2016
If you reached State Pension Age after 6 April 2016, but had qualifying years before that date, then this could potentially impact your entitlement under the new system:
- You could be entitled to more
If you were entitled to more Basic State Pension and Additional State Pension on 6 April 2016 than the full rate of new State Pension, then this extra amount will be protected and paid in addition to the new State Pension. - Or you could be entitled to less
Under the old system, people could “contract out” of the Additional State Pension. “Contracting out” involved paying a lower rate of National Insurance contributions (or receiving a National Insurance rebate) and not accruing any Additional State Pension for that year.
Contracting out to pay lower National Insurance contributions
A decision to “contract out” could be taken by an occupational pension scheme (so all members of that scheme were automatically “contracted out”) or by the individual themselves (using a private pension).
If someone had been “contracted out” (and hence paying lower National Insurance contributions) under the old system, then this could potentially impact on their entitlement to pension benefits under the new system.
This is because, in effect, years when people paid lower National Insurance contributions when they were “contracted out” did not necessarily count as full qualifying years under the new system (there was a calculation to adjust entitlement for the impact of paying lower National Insurance).
For this reason, it is possible for people with more than 35 years of National Insurance contributions or credits to qualify for less than the full rate of the new State Pension if some of those years involved contributing at a lower rate because they were “contracted out”.
People in this situation can potentially need up to 44 years of National Insurance contributions or credits to be eligible for a new State Pension at the full rate.
Many Prospect and Bectu members were affected by this because they were in schemes that were “contracted out”; such as the civil service scheme (or any public service scheme), groups of the Electricity Supply Pension Scheme, the BT pension scheme, the BBC pension scheme etc.
However, due to the way the transitional rules operated when the new system was introduced, it is unlikely that people reaching State Pension Age in the future will be greatly impacted by reductions in entitlement due to contributing at a lower rate in the past.
If you check your State Pension forecast and see that you are entitled to less than the full rate of the new State Pension, then you can consider whether you might benefit from the option to pay voluntary (Class 3) National Insurance contributions.