Tuesday 12 April 2016

Expenses and benefits, Single-tier state pension, End of contracting-out

As we start a new tax year, we look at some of the changes that come into effect from the start of the 2016/17 tax year. We explore the new-look expenses and benefits regime and examine the single-tier pension and the implications of the end of contracting out. 

This is an extract from our topical tax tips newsletter dated 7 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Single-tier state pension 
Individuals who reach state pension age on or after 6 April 2016 will receive the new single-tier state pension rather than the two-tier pension (comprising the basic state pension and the earnings-related second state pension) which is payable to people who reach state pension age before 6 April 2016. Those individuals who are of state pension age on 6 April 2016 will continue to receive their state pension under the two-tier system. They will not switch to the new single-tier state pension. 

The single-tier state pension is set at £155.65 per week for 2016/17 (slightly above the standard minimum guarantee, which is £155.60 per week). The basic state pension is £119.30 per week (but this may be topped up by the pension credits). 

To qualify for the full single-tier state pension, individuals need a minimum of 35 qualifying years. A reduced pension is payable where an individual has less than 35 qualifying years but at least ten. By contrast, only 30 qualifying years were needed for the basic state pension where state pension age was reached between 6 April 2010 and 5 April 2016. A person who contracted-out prior to 6 April 2016, may receive less than the full single-tier state pension, even if they have 35 qualifying years. 

It is possible to make up for missed years by paying voluntary Class 3 contributions. Also, individuals who reached state pension age before 6 April 2016 have until 5 April 2017 in which to pay a Class 3A contribution. Each Class 3A contribution increases the basic state pension by £1 per week and individuals can `buy’ up to £25 per week extra from Class 3A contributions. The amount of a Class 3A contribution depends on the individual’s age at the time that the contribution was made. 

Before deciding whether to pay voluntary contributions, individuals should get a pension forecast so that can assess whether or not such contributions are worthwhile.


This is an extract from our topical tax tips newsletter dated 7 April 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>> 

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