Understanding the State Pension: eligibility, benefits, and maximising options

What is the state pension?

The State Pension is a regular payment made to you once you reach State Pension age.

It’s paid by the Government to most people. It’s entirely separate from any personal pensions you might have.

The State Pension is a non-means tested benefit payment and if you have sufficient credits at State Pension age you will become eligible. However, this doesn’t mean you can just sit back and wait for it to kick in when you retire.

The amount you’ll get will depend on how many National Insurance contributions you have made during your life, and it’s possible you won’t receive as much as you might have hoped for or expected.

Can you survive on a State Pension?

This will depend on your lifestyle; the current full State Pension is £185.15 a week, but this alone is unlikely to allow you to enjoy a comfortable retirement financially. Unless you live very frugally the chances are that you would need some extra income alongside your State Pension.

That’s why it’s a good idea to make your own provision during your working life, through a workplace pension and/or your own personal pension.

When will I get my State Pension?

Life expectancy has increased over the years, which means the Government will have to make more pension payments than they might have done in the past.

As a result of this, the State Pension age has risen occasionally in the past, and it means that younger people today will have to wait a bit longer to get their State Pension.

The State Pension age used to be 65 for men and 60 for women before it was equalised. Since then, it has risen to 66, and it is due to go up to 67 in 2028.You can work out your own State Pension age with the Government’s online calculator.

How much State Pension will I get?

The full New State Pension is currently £185.15 a week, but this is based on how many National Insurance contributions you have made, or credits you have built up, by your retirement age.

Since 2016, men born after 1951 and women born after 1953 need to build up at least ten years of National Insurance contributions (“qualifying years”) to get any State Pension at all, and 35 qualifying years to get the full amount.

If you have anywhere between 10 and 35 years on your NI record, you’ll receive an equivalent proportion of the full State Pension.

How do I build up qualifying years?

If you earn more than £242 a week from one employer or you’re self-employed and paying National Insurance contributions, that year’s payments will constitute a qualifying year.

If you earn between £123 and £242 a week you might not pay NI contributions, but will still receive NI credit which equates to a qualifying year, although this varies.

If you are not working, you might earn NI credits, which count towards your qualifying years. Examples of this include; parents claiming Child Benefit for children under the age of 12, people on Jobseeker’s Allowance, and those claiming Carer’s Allowance.

If you’re not paying National Insurance and not receiving NI credits, you might be able to pay voluntary contributions to boost your number of qualifying years.

What is the Basic State Pension?

The Basic State Pension is the old system, and everyone who qualified for that has now reached retirement age. It pays £141.85 a week.

If you receive the Basic State Pension, you might be eligible for top-up payments through the Additional State Pension (also known as the State Second Pension, State Earnings-Related Pension Scheme, or State Pension top up).If you retire today, you should be eligible for the New State Pension instead, assuming you’ve built up sufficient NI qualifying years. However, you may receive less than the New State Pension if you were contracted out via a personal pension or workplace pension (for example, a Defined Benefit pension). You can find out more about contracting out here.

What happens if I don't claim my State Pension?

You can backdate your State Pension claim for up to 12 months. If you don’t claim your pension immediately, you will find that your monthly payments will be higher when you do start to claim it, as long as you have deferred claiming for at least nine weeks.

This depends on when you reached State Pension age and how long you have delayed claiming them.

Can I draw my State Pension and still work?

Yes, you can continue to work for as long as you want at the same time as receiving your State Pension.

How much is a State Pension for a couple?

Married couples and civil partners don’t get any special provisions. Their pension payments are worked out like everyone else’s.

So if both partners’ National Insurance records entitle them to the full State Pension, they’ll each get £185.15 a week.

Is the State Pension taxable?

The State Pension counts towards your total annual income, whether you pay tax on it will depend on a number of things:

If you deferred taking your State Pension you may be over the threshold for paying income tax.
If you paid NI (or received NI credits) before April 2016, you may have ‘protected benefits’ which take you over the threshold.
If you receive other income, for example from work, a private pension, or investments, your State Pension income is included when working out your total “earnings” and this may be over the income tax threshold.
If all you receive is the State Pension (and none of the above points apply), you may not reach the threshold for paying income tax.

Maximising your options

Although it can be easy to think of a State Pension as something that you’ll automatically receive, you should still plan ahead.

In particular, keep an eye on your National Insurance record so you know how many qualifying years you are on course to achieve, and check your State Pension forecast.

If you think you’re going to fall short of the full 35 qualifying years, you might be able to make extra voluntary payments to top it up.

If you are still getting income from other sources when you retire, you might consider delaying taking your State Pension to get higher weekly payments later on.

Can you get both a State and a Private Pension?

Yes. Your State Pension is an entitlement based on how many National Insurance contributions you have made during your life.

It is not affected by any other retirement plans you might have arranged privately, either through a workplace pension or a personal pension.

How can I increase my State Pension?

The main way to maximise your State Pension is to increase the number of NI qualifying years.

But if you’ve already retired and you’re on only a low income, you might be eligible for Pension Credit, which will top up your weekly payments.

If your husband, wife or civil partner dies, you might be eligible for extra pension payments based on your partner’s pension or NI contributions. But you will only be eligible once you reach State Pension age yourself and will not be entitled if you remarry before then.

What should I do next?

With legislation regularly changing, it can be hard to keep up with the State Pension rules. It’s advisable to keep an eye on your State Pension forecast so you know what to expect in retirement.

It’s also wise to look at other options to fund your retirement, such as how much your workplace pension will provide you with (if you are paying into one), and whether you should pay into a separate personal pension. At Alan Boswell Group, we can help plan your finances and talk you through the options that are suitable for you.

Help with private pensions

Call us to speak to one of our independent and experienced advisers, who can help you understand how much you’ll need to retire and put plans in place to achieve your goals.

Speak to us: 01603 967967