What is the State Pension?

The State Pension is a regular payment you can get from the government once you reach State Pension age. To qualify you must have paid National Insurance contributions during your working life.

The first state pension was introduced back in 1908. It came amongst a raft of social welfare reforms and it’s stayed with us ever since, generation after generation receiving some kind of state pension. At last time of counting the country’s pensioners received an annual £96.7 billion between them, with State Pension payments making up almost half of the government’s total welfare spending.

How much is the State Pension?

The full State Pension is currently worth £175.20 per week (2020/21) totaling £9,110.40 per year. It is adjusted each year based on the ‘triple lock’ guarantee, which means that each April it increases by the greater of September’s price inflation, earnings growth or 2.5%.

Not everyone will be entitled to the maximum State Pension. You’ll need to have 10 years of National Insurance Contributions to receive the bare minimum. To receive the maximum State Pension amount, you’ll need to have 35 ‘qualifying’ years.

Here’s what determines a qualifying year:

  • You’re employed and earning over £183 a week (2020/21) from one employer and paying National Insurance Contributions
  • You’re employed and earning between £120 and £183 a week (2020/21) from one employer and are treated as having paid National Insurance Contributions
  • You’re self-employed and paying Class 2 National Insurance Contributions
  • You make voluntary National Insurance contributions
  • You receive National Insurance credits

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’. However, the current system is only a ‘single tier’ State Pension as calculated by just your National Insurance Contributions (or received credits) and the period of time you have been paying them.

Figures from the Department for Work and Pensions indicate that the average State Pension was around £158 per week (2019/20). The average pay out for men was roughly £160, whilst for women it was only £152.

What is your State Pension entitlement?

The State Pension you’ll receive is based on the National Insurance Contributions you make during your working life and how many ‘qualifying years’ you have built up.

You can use the gov.uk State Pension calculator to check your National Insurance Contribution record. You just need to answer a few simple questions to find out how much State Pension you could get, when you can claim it and how you can potentially increase it. Checking your State Pension forecast is a crucial part of retirement planning and will help you calculate just how much you stand to receive from the government.

Your State Pension entitlement could be higher if you’re a man born before 6 April 1951 or a woman born before 6 April 1953, due to the age you were when the new State Pension rules came into effect. For more information on this, you can check the government’s website.

Widow’s Pension

Your State Pension entitlement may also be affected if you are widowed. You may be able to inherit an additional payment if your late spouse or civil partner had reached the State Pension age, but hadn’t claimed it yet. This extra payment may consist of Additional State Pension, or in some cases a protected payment. However, if you have since remarried or entered a new civil partnership before you reach State Pension age, you won’t be able to inherit any additional amount.

State Pension after a divorce

If you are divorced or your civil partnership has dissolved, your State Pension entitlement might be affected too. You will get a ‘pension sharing order‘ as part of your financial settlement with your ex-partner. In this, the court may decide that an individual must share their Additional State Pension or protected payment with their former partner. If the court does decide this, your partner’s State Pension will be reduced and you will get the additional amount as an extra payment on top of your State Pension.

How much is the State Pension for a married couple?

As a married couple, working out your State Pension entitlement is now a much simpler process. Previously, in the old two-tier State Pension, a married woman was able to claim a pension at 60% of their husband’s basic State Pension record based on their National Insurance Contributions. In the new system, however, the option to claim a pension based on a partner’s contributions has been abolished. You will now only be able to claim your own State Pension, based on your own contributions. This does mean, however, that you could receive a maximum of £350.40 per week or £18,220.80 per year between the two of you (2020/21).

When can you claim your State Pension?

The age at which you can claim your State Pension has changed drastically since 2010 and is set to change further in the future. Currently, both men and women can claim their State Pension from the age of 66. However, this is set to increase to 67 by 2028, before increasing again to 68 between 2037 and 2039.

At the moment, you won’t receive your State Pension automatically and will need to claim it when you meet the required age. You will receive a letter 4 months before you reach State Pension age, which will have instructions on how to claim it. Presently, you are able to do this online, over the phone or by using the State Pension claim form and sending it to your local pension centre.

The rules surrounding the State Pension are likely to continue to change as governments introduce new legislation. It’s quite possible that both the State Pension age and amount you receive from it will be squeezed more in the future, as governments try to save money. Instead, it’s likely that ministers will look for ways to incentivise personal and workplace pension saving.

Can you live off the State Pension?

If you’re eligible for the full State Pension, you’ll have an annual income of just over £9,000. Research by the Pensions and Lifetime Savings Association indicated that just over £20,000 per year is needed for a ‘moderate’ retirement for an individual, in order to allow for some flexibility and a higher level of financial security, on top of a few luxuries. So, in order to achieve this income of £20,000 in retirement, you’ll need to have some additional provisions in place on top of your State Pension.

Although your circumstances may mean you need less money in later life when you remove the costs of commuting, or if you manage to repay your mortgage before retirement, no matter how 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.

If you’re unsure of what your income may be in later life, you can use our pension calculator to get a better picture of this. Our calculator will allow you to set a retirement goal and work out what additional savings you may need to make, to afford a comfortable retirement.

How to boost your State Pension

Ensure you are paying enough National Insurance Contributions

If there have been periods in your career where you haven’t been working or paying your National Insurance for various reasons, there’s no need to worry. You may be entitled to claim National Insurance Credits, which can help you fill in the gaps in your contribution record.

Check if you are eligible for National Insurance Credits

National Insurance Credits are vital for people who are unemployed, have a low income or may be claiming benefits. You’ll also be able to claim credits if you haven’t been able to work due to ill-health, or are looking after children or completing jury service. These are just a few examples, with more information and how to apply for them on the National Insurance Credits section of the GOV.UK website.

You may also have gaps in your National Insurance records if you’ve worked abroad or have been self-employed during your career. If this is the case, you’ll be able to make voluntary contributions. These are known as Class 3 Contributions and can help you make up for the years you may have missed. However, you can normally only make voluntary contributions for gaps within the previous six years.

Delay taking your State Pension

Although you’ll have access to your State Pension as soon as you turn 65 (currently), it’s not obligatory to claim it straight away. Delaying when you start to claim it can be useful and may allow you to boost your income when you eventually need it. If you decide to stay in employment, you could delay claiming your State Pension by a few years, which could help you secure additional money when you choose to retire.

For every nine weeks you defer taking your State Pension, it will increase in value by 1%. So, if you were to delay taking it by a year, that would be an increase of nearly 6%. The additional amount should also increase each year in line with inflation too.

Buy ‘extra’ pension years

If you can afford it, it is worth considering using a one-off lump sum to buy a larger state pension than you would have been entitled to. However, this should only be done if your forecast or personal calculations show you will be short of the full 35 qualifying years. If you live a long time the extra payment could be worth thousands over the course of your life. You can only top up for any missing contributions in the most recent 10 year period.

Claim Child Benefit to protect your State Pension

If you have children, it is important to claim Child Benefit even if you earn over £50,000, as this can help build up the credits needed. After making a claim for Child Benefit, those liable for the High-Income Child Benefit Charge (HICBC) can opt-out of receiving payments of Child Benefit if they wish to avoid a tax charge, but still get the National Insurance credits.

Increase your retirement income with PensionBee

So, as you can see, it’s vital that you think ahead to your retirement and check that you have the necessary savings in place to give you the lifestyle you want in later life. There are various ways you can look to increase your retirement income, whether this is from a job, the State Pension or a personal pension. Whatever way you choose it’s important to think about this sooner rather than later.

If you want to build on the base that your State Pension provides, you can sign up with PensionBee today. You can do this in just a few minutes on our website, or through our app. You will then be assigned your very own BeeKeeper who’ll be on hand to support you with any questions or concerns you may have, and keep you up to date throughout your journey with PensionBee. Get started here.

Last edited: 21-02-2020

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