Steve Webb, a financial expert, explains the complexities of the new state pension system and how factors like contributions before and after the new rules and contracted-out years can influence retirement income.
I'm getting close to retirement and thought it would be useful to check my state pension forecast. I also decided to check my wife's. We both have more than 35 years contributions so are entitled to receive the full amount.
However, my yearly amount is higher than my wife's. Why is this? When I checked in 2025/26 it said I would receive £258.01 a week. My wife is set to receive £231.05.
Both of these amounts will have risen in April 2026, but I cannot see why there is a difference? Steve Webb replies: The idea of the new state pension system is that most new retirees will receive the standard rate, which was £230.25 per week in 2025/26 and rose to £241.30 in April 2026. For young people, who didn't start work until the new system started in 2016/17, the calculation is very simple.
They will get a full new state pension for 35 years in the system, and the rate is reduced pro rata for those with fewer years. Steve Webb: Get in touch with your problem at pensionquestions@thisismoney.co.uk Those with 34 years get 34/35, those with 33 years get 33/35 and so on. For this generation no-one can get more than the standard flat rate .
But for many years to come, people retiring will have a mix of years paid in before the rules changed, and years since the rules changed. And this can mean that some people – such as you and your wife – can still receive more than the standard rate, but it is also possible to receive less – even if you've paid in for 35 or more years. I'm happy to explain how this can happen.
The key to understanding what is going on is that your new state pension entitlement is worked out in a two stage process, treating pre 2016 contributions and post 2016 contributions differently. Stage 1: Work out the 2016 'starting amount'The first step is to work out how much state pension you had built up by 2016 under the old rules, compare this with your entitlement if the new rules had been in force all along, and pay the higher of the two.
· The 'old rules' calculation is based on a full old-style 'basic' state pension for those with 30 years or more, plus any 'additional' state pension you have built up . · The 'new rules' calculation is based on a full new-style 'flat rate' state pension for those with 35 years or more, minus a deduction for any years when you were 'contracted out' of part of the state pension.
These were years when you paid a lower rate of NI contributions because you were paying into a workplace or personal pension. The more years you were contracted out, and the more you earned in those years, the bigger the deduction. Read More The state pension age may have to rise again, so protect your retirement: ANDREW OXLADE Whichever is the higher of these two figures forms your 2016 'starting amount'.
You will see from this description that the 'new rules' calculation can never be more than the standard flat rate of the new state pension. But in your case you had already built up more than this from the old system – basic pension plus additional pension. So, as a transitional protection for people in your situation, you keep this higher figure.
To be more precise on retiring you get paid the standard rate of the new state pension plus something called a 'protected payment' on top. This protected payment behaves slightly differently once you receive it as it is indexed in a different way to your main pension and, in the event of your death, 50 per cent of your protected payment can be inherited by a surviving spouse or civil partner.
For both you and your wife, this stage of the calculation has given you a figure above the standard flat rate which is 'locked in'. No further contributions post 2016 will change this figure .
In terms of the different amounts you are each getting, it would seem that you had a higher 'additional' state pension than your wife , which is why your pension figure is larger. For other people, this 2016 figure can be well below the standard flat rate, especially if they were extensively contracted out.
Confusing: Many people retiring will have a mix of years paid in before the state pension rules changed, and years since the rules changed Stage 2: Work out the 2016 'starting amount'For those whose 2016 starting amount is short of the standard flat rate, years from 2016/17 onwards simply add 1/35 of the full flat rate onto your starting amount. This process continues until you hit the standard rate , but cannot take you above the standard rate.
In the early years of the new state pension, people obviously had very few 'post 2016' years to add to their starting amount. This meant that if their 2016 starting amount was low because of contracting out, they would retire with a pension short of the full rate. But, with every passing year, people have more and more post 2016 years to add to their starting amount.
Such years can 'burn off' deductions for past contracting out enabling more and more people to attain the full flat rate. In summary, although most people retiring these days will get the standard figure, it is still possible to be above or below.
Those above, such as you and your wife, will have had a meaningful amount of additional state pension already built up when the rules changed in 2016, and those contributions are honoured in the form of a higher state pension. Those below will either be short because of past contracting out or simply because of gaps in their NI record.
Ask Steve Webb a pension question Former Pensions Minister Steve Webb is This Is Money's Agony Uncle. He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement. Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk. Steve will do his best to reply to your message in a forthcoming column, but he won't be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message - this will be kept confidential and not used for marketing purposes. If Steve is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on pensions to the public. It can be found here and its number is 0800 011 3797. Steve receives many questions about state pension forecasts and COPE, the Contracted Out Pension Equivalent.
If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve's several earlier columns about state pension forecasts and contracting out, which might be helpful. SIPPS: INVEST TO BUILD YOUR PENSIONAJ BellAJ Bell0.25% account fee.
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