State pension: This is the formula used to work out payments – gauge your starting amount

State pension payments can come from two different types of setups. Depending on their date of birth, a person could receive either a “basic” or “new” state pension.

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Most retirees will now receive the new state pension but their National Insurance contributions and credits made before April 6 2016 will receive a special calculation which will affect their payments.

A person’s National Insurance record before April 6 2016 is used to calculate a “starting amount” which will be part of their new State Pension.

The starting amount will be the higher of either:

  • The amount they would get under the old state pension rules (which includes basic and additional state pensions)
  • The amount they would get if the new state pension had been in place at the start of their working life

A person’s starting amount may include a deduction if the person “contracted out” of their additional state pension in the past, which could occur if they were invested in a certain type of private pension scheme.

In some cases, a person’s starting amount may be less than the new full state pension.

If this is the case, the person could get more from their state pension by adding more qualifying years to their National Insurance record after April 5 2016.

They can do this until they reach the new state pension amount or retirement age, whichever comes sooner.

While this all should boost eventual payments, it should be noted that there is a specific formula in place which will determine the outcomes.

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The government detailed that each qualifying year on a national record after April 5 2016 will add about £5 a week to a new state pension.

The exact amount a person could get is calculated by dividing £175.20 by 35 and then multiplying by the number of qualifying years held after April 5 2016.

In some instances, a person’s starting amount may be more than the full new state pension of £175.20 per week.

This will be known as the “protected payment” and it is paid on top of the state pension income.

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State pension payments, once they’re claimed, will increase annually under the triple lock system.

The payments will increase by whichever is the highest of:

  • Earnings – the average percentage growth in wages within the UK
  • Prices – the percentage growth in prices in the UK as measured by the consumer prices index
  • 2.5 percent

It should be noted state pensions will not be received automatically.

They must be claimed when a person reaches state pension age which is currently either 65 or 66 but will be increased to 68 in the coming years.

The quickest way to claim a state pension is through the government’s website.

However, it can also be claimed over the phone or by completing a specific form.

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