The state pension
May 2009
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 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. Currently men who have worked for 44 years paying National Insurance will usually be entitled to the full state pension on their retirement, which is £95.25 per week. For women, 39 years are required for the full state pension. Currently, men can claim their pension at 65, while women can claim theirs at 60.
As of 6 April 2009 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. 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. A person with less than 30 qualifying years will be entitled to a proportion of their pension for each qualifying year they have built up. So the basic rule is, the more years you work the more money you get from your state pension.
How much will I get?
Assuming you accumulate the full number of qualifying years, a single person currently receives £95.25 per week in their retirement, while couples where one spouse does not qualify for their own maximum state pension can get up to £152.40 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:
However, even if you have not worked for the required number of years before retiring, you may still be able to claim a state pension in certain cases. If you have been receiving Jobseeker's Allowance, Incapacity Benefit or Carers’ Allowance, for example, you will normally be counted as having made the required NICs even though no money has been taken out of your benefits, allowing you to qualify for the state pension.
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 through the Home Responsibilities Scheme (HRS). This reduces the minimum number of qualifying years needed to qualify for the state pension, although a minimum of 20 years is still required. For those reaching state pension age on or after 6 April 2010, each complete year of HRS awarded under the existing rules will be converted into a qualifying year for the Basic State Pension and relevant bereavement benefits.
From 6 April 2020, when the state pension age for women is raised to 65 years, Home Responsibilities Protection (HRP) cannot reduce the number of qualifying years below 22. The HRP is due to be replaced with a pension credits system that will be more generous.
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.
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
You can find out more on the government's pension service website www.pensions.gov.uk including a state pension forecaster, telling you how much pension you will have earned to date, and how much you can expect to receive in your retirement.
