What are the recent State Pension changes?
On 6th April 2016, some significant changes were made to the State Pension. Previously, there was a two-tier State Pension: you could get the full ‘basic State Pension’ if you had at least 30 years of National Insurance contributions, and then depending on your level of National Insurance contributions, you may have been eligible to receive some ‘additional State Pension’.
This system has now been replaced with a single ‘new State Pension’. You can receive this if you’ve paid National Insurance Contributions (or received credits) for at least 10 years, but you’re only eligible for the full amount if you’ve paid contributions for at least 35 years.
How much State Pension will I get?
The amount of State Pension you receive is based on your National Insurance record, which is built up as you work. If you’ve been unable to work for a qualifying reason (such as caring for a child or elderly relative, or for a long-term illness), you can still contribute to your National Insurance record with credits.
As a rough guide, the government suggests that for each year you accrue National Insurance credits from April 2016 onwards, you’ll add about £4.45 to your weekly State Pension amount.
The Full State Pension is currently £164.35 per week (2018/19), and is adjusted each year based on inflation. This is the maximum you’ll be entitled to once you reach State Pension age. However, if you’re a man born before 6 April 1951 or a woman born before 6 April 1953, you may be eligible to receive a higher amount due to the age you were when the new State Pension rules came into effect. For more details, check the government’s website.
Can I live off the State Pension?
If you accrue the full 35 years of National Insurance credits, under the new scheme you could expect to receive a State Pension of up to £8,546.20 a year (2018/19). According to recent research, a single person needs an annual income of just £17,000 to live comfortably in the UK*. Depending on your circumstances it may be the case that you need less money in later life when you remove the costs of commuting, or if you manage to repay your mortgage before retirement, for example.
Yet however much you reduce your outgoings by, it’s unlikely the State Pension will be enough to live off – even if you receive the maximum amount. It’s therefore crucial to save into a personal pension and/or a workplace pension well in advance of retirement so that you’ll have a decent income in later life.
You can learn more about the different types of pensions and how they work in our Pensions Explained Centre. You can also use our pension calculator to set a yourself a retirement goal and see how much you’ll need to save each month, in addition to your expected State Pension amount, to reach your target.
It’s worth pointing out that you can still earn an income once you reach State Pension age, as you don’t have to stop working. If you decide to stay in employment, you can delay claiming your State Pension by a few years, which could help you secure additional money when you choose to retire.
When can I claim the State Pension?
The age at which you can claim the State Pension is rising. For many years it was 65 for men and 60 for women, but by the end of 2018 the State Pension age for women will rise to 65. It’s increasing further for men and women to 66 by 2020 and 67 by 2028.
Over the next few decades it’s expected to rise again until eventually it’ll be calculated based on average life expectancy. People in their twenties today are predicted to have a State Pension Age of at least 68.
Future State Pension changes
State Pension rules are likely to continue to change as governments introduce new legislation. It’s quite possible that the State Pension will be squeezed more in the future as governments try to save money, and that ministers will look for ways to incentivise personal and workplace pension saving instead.
PensionBee can help you plan for retirement by combining all of your personal and workplace pensions into one online plan. You can manage your retirement saving online, setting up regular contributions and making one-off payments quickly and easily through your personal dashboard. Join PensionBee now and take control of your pension saving.
(* Source: Joseph Rowntree Foundation report)
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 30-09-2018