About Your State Pension
About Your State Pension
The first and most important point to remember about the state pension is that not everyone is entitled to receive it. In order to receive a state pension, you will need to have a record of paying, or being credited with, national insurance (NI) contributions. Providing you have an applicable NI record then you will receive a state pension, although the amount you receive will depend upon your contribution record.
For anyone reaching state pension age after April 2010, the maximum state pension is payable only to those who have 30 qualifying years of NI contributions. If you reached state pension age earlier than this date, then you will need to have up to 44 years of qualifying NI contributions to receive the full state pension.
What is a qualifying year?
A qualifying year is a year in which you have paid or been credited with NI contributions. For an employed person, a minimum level of earnings must be received before NI contributions become payable, and this is reviewed upwards each year at the annual budget.
Unemployed people claiming jobseekers allowance are automatically credited with qualifying NI contributions, as are mothers with children under school age. The self-employed must have paid Class 2 NI to be deemed as contributing to a qualifying year.
Fortunately, you don’t have to guess at how many qualifying years you have accumulated toward a state pension. Anyone not yet retired can use the State Pension Profiler service to receive an estimate of the number of years of applicable NI contribution they have, as well as details of state pension that may be paid to the individual, and information on how to fill any gaps in the NI record toward the state pension.
How much is the Maximum State pension?
The full state pension for a single person in 2012/ 13 is £107.45 per week, and for a married couple it is £171.85 per week.
A person who has paid more than 30 years of NI contributions may also receive a State 2nd pension (S2P), but only if he is not contracted out. This was previously called SERPS (State Earnings Related Pension Scheme). Contracting out is a way to divert some NI payments into a private scheme or a company scheme.
The married couple’s pension is designed to ensure that where a spouse does not qualify for a pension, then an increased pension payment is made. It recognises that many couples have only one working partner through the working life (though this is increasingly not the case), and that income falls accordingly in retirement. If both partners qualify for a full state pension, then they will receive this individually.
When can you claim your state pension?
It used to be that women could retire at age 60 and receive the state pension, but men had to wait until 65. This anomaly is being addressed, however, and women’s retirement age is being increased gradually to 65 by November 2018. From April 2020, the state retirement age for both men and women will be 66.
The State Second Pension
This is a further state pension that is paid dependent upon the amount of NI contributions made over your working life. It is not paid to those who were self-employed. It is capped at a maximum of around £160 and is only paid to those who have earnings in excess of the lower earnings limit.
State pension reform
The S2P is to be withdrawn, and the state pension will be rationalised into a single tier pension, though full details of the reform are not yet known. However, this change is proposed to be accepted into law at the start of the next parliament and then probably be phased in.
Pension credit
Although the state pension is set at a maximum of £107.45 per week, for all those who receive total income of less than £142.50 (£217.90 for a couple), then there is a means tested benefit called the pension credit that can be claimed.
If you receive no other income, by way of other pensions, savings interest, investment dividends, etc., then you will be eligible to have your state pension topped up with the pension credit to the minimum amounts as above.
Savings credit
For those aged 65 and over, in receipt of pension credit, and have income from other sources, then the savings credit can also be claimed. This is an extra payment on top of the state pension and pension credit, and can be as much as around £20 per week. The amount received is reduced with increasing income, up to a limit of around £190 income per week for a single person.
Finding out more
With the ever changing economic landscape, the state pension is likely to decrease in value over time. The government has already put in place plans and laws to encourage employees to make state independent retirement planning, including automatic enrolment into company pension schemes.
The simplification of state pension schemes is being considered, planned, and prepared for, and this is likely to lead to further erosion of benefits available over time.
For these reasons it is important that individuals keep abreast of reforms and what it means for financial futures going forward. The government has comprehensive help lines to help people not only in retirement or nearing retirement, but also those that want to have all the information to hand before seeking independent advice. This service can be given online, over the telephone, or even face-to-face. Your first port of call when requiring such information should always be the directgov pensions and retirement planning contacts page on its website.