The State Pension
July 2010
What is it?
When navigating the often complex world of pensions, savings and investments, a good place to start is by looking at the basic State Pension – the money provided to you in retirement as a result of National Insurance contributions (NICs) made during your working life.
The State Pension is organised by the government, which collects funds through NICs paid by working men, women and employers as a percentage of their earnings. The system means that, even without investing in other pension plans or relying on extra savings, you will receive a regular income in your retirement, assuming you qualify.
How do I qualify?
To qualify for the State Pension, you need to have made sufficient NICs for a minimum number of years, which varies depending on your age and whether you're male or female. Men who reached retirement age before 6 April 2010, and worked for 44 years paying NICs will usually be entitled to the full State Pension on their retirement, which is £97.65 per week (2010/11). For women who reached retirement age before 6 April 2010, the number of qualifying years is 39 years. Currently, men can claim their pension at 65, while women can claim theirs at 60.
For those reaching State Pension Age on or after 6 April 2010, the number of qualifying years needed to qualify for a full basic State Pension will be reduced to 30 for both men and women.
You need to be earning at least £110 per week during any tax year to pay National Insurance and make it count as one of these 'qualifying years'. If you do not accumulate the required number of qualifying years during your working life, you can still claim the State Pension, but it will not be the full amount - rather you will receive a proportion of your pension for each qualifying year you have built up.
How much will I get?
Assuming you accumulate the full number of qualifying years, a single person currently receives £97.65 per week in their retirement, while couples where one spouse does not qualify for their own maximum State Pension can get up to £156.16 per week. Those who have fewer than the required number of qualifying years will get less. The amount you receive is then reviewed every year to ensure that the amount stays in line with inflation. In 2012, the State Pension will be increased annually in line with earnings rather than inflation.
Exceptions to the qualifying years rule
Even without claiming these benefits, you may still be able to claim the State Pension if you have been looking after children or caring for sick or disabled people. For those who reached retirement age before 6 April 2010, Home Responsibilities Protection (HRP) reduced the minimum number of qualifying years needed to qualify for the State Pension, although a minimum of 20 years was still required.
However HRP has now been replaced by a new system of weekly contribution credits for anyone reaching State Pension age on or after 6 April 2010. Parents and carers will be able to build up qualifying years for the basic State Pension and additional State Pension by earning credits for each week in which they are:
- a foster carer
- caring for one or more severely disabled persons for 20 hours a week or more
- getting Child Benefit for a child under 12 years of age
If you have built up qualifying years of HRP before 6 April 2010, these won't be lost - up to 22 years of these credits will be automatically converted intot qualifying years towards your basic State Pension.
You can find out more by visiting the Directgov website.
How do I claim the State Pension?
Men can currently claim their State Pension at 65, while women can claim at 60. At this time, the Department for Work and Pensions will invite you to claim your pension, which you can begin receiving immediately.
The previous Labour government had plans to gradually increase the State Pension age for both men and women, which would be introduced over two years every decade. The changes would mean that:
- State Pension age would increase from 65 to 66 from April 2024 - 2026
- State Pension age would increase from 66 to 67 from April 2034 - 2036
- State Pension age would increase from 67 to 68 from April 2044 - 2046
However the new coalition government has since announced plans to review when the State Pension age will increase to 66.
You can start claiming your pension even if you are continuing to work, as this will have no effect on the amount of money you receive. Bear in mind, however, that if your total earnings are great enough, you may have to pay tax on the money you receive through your pension.
If you are working, or do not need the financial support of your pension immediately, it is also worth considering delaying claiming your State Pension until a later date. This should not mean that you lose out on any money – claiming later will mean either receiving extra State Pension to make up for the shortfall, or a lump sum payment.
How to find out more
Online information from the Pension Service is now available at the Directgov website.
