State Pension is the pension that you receive from the Government for your retirement, once you reach the pensionable age.
Each country's pension system is different. For example, in Germany, although you pay into your pension with contributions to social security as in the UK with National Insurance contributions, the pension money is not saved or invested but distributed amongst existing pensioners.
The rules around State Pension in the UK have also changed since the 6th of April 2016. Now you either receive a basic State Pension or the new State Pension, depending on several factors explained further below .
Here we explain how the State Pension works in 2021 and 2022.
Basic State Pension vs New State Pension
Those who are born before:
- 6 April 1951 and are a man
- 6 April 1953 and are a woman
will receive a basic State Pension which is £137.60 per week.
Those born after :
- 6 April 1951 and are a man
- 6 April 1953 and are a woman
will receive the new State Pension which is £179.60 per week, as of 2021.
So how much is the State Pension?
Depending on your date of birth, you will receive a basic or new State Pension. Although it seems as if there's a considerable difference in pension income, both types of pensions are not substantial for a good standard of living. This amount of pension income is not reliable for anyone living in the UK; statistics show that a single person should be earning £33,600 a year for a comfortable standard of living.
State Pension is paid until you die. It could be possible for a spouse or civil partner to inherit some of it, depending on the situation and the rules.
How to claim my State Pension?
Once you reach State Pension age and you decide that you want to retire and not defer your pension, you can claim it. You will receive a letter from the Government two months before you’re supposed to officially retire explaining what to do, or you can apply online.
Do I qualify for the State Pension?
Anyone is eligible for a State Pension - whether basic or new - when they've made NI contributions in the past, for at least 10 qualifying years.
In other words, if in your National Insurance record you have at least 10 qualifying years of:
- working and paying NI contributions
- receiving NI credits
- and paying voluntary NI contributions - which do not increase your pension but count towards it,
you will qualify for a State Pension. However, ten years is the minimum meaning that you will not receive the full State Pension mentioned above.
A full basic State Pension is available to those who have an accumulative of National Insurance contributions or credits for thirty years.
A full new State Pension is available to those who have made National Insurance contributions or earned credits for thirty five years.
How much State Pension will I get? How is my pension amount worked out?
After you figure out whether you'll receive a basic or new State Pension - based on your date of birth or whether you retired before or after 6th of April 2016 - you're wondering how much you'll get. The amount will be based on your qualifying years in your NI record as explained above and on whether you receive your pension based on the 6th of April 2016.
If you reach State Pension age before the 6th of April 2016 and you’ve contributed to the Government, then you qualify for the full basic pension.
If you've reached pensionable age after 6th of April 2016 and you don't have a NI contributions record before this date, then you qualify for the full new State Pension.
Your pension will be calculated based on the new rules. Each NI qualifying year is 1/35th of the full amount, in other words:
- if you've worked for 35 years, you get 35/35 x £179.60 = £179.60 a week
- if you've worked for the minimum amount to qualify for the pension which is 10 years, you get 10/35 x £179.60 = £51.31 a week
If you've reached pensionable age after 6th of April 2016 and you have a NI contributions record before this date, your pension will be calculated based on your 'starting amount'.
To make it fair to all pensioners and to ensure that they are not affected by this change in rules, the Government has put transitional arrangements in place.
If your starting amount is less than a full new State Pension, then you can add qualifying years to your records until you reach the threshold for a full new pension or until you reach State Pension age. Each qualifying year on your record will add £5.13 to your weekly pension income.
If your starting amount is more than the full new State Pension, the difference between your starting amount and the full new State Pension is called 'protected payment' and it is added to your full new State Pension.
When will I get my State Pension?
- People born on or before 5th of April 1970 can retire at 67.
- People born between 6th of April 1970 and 5th of April 1978, currently can retire at 67 as well. However there's a proposed change to increase the retirement age for this age group.
- People born after the 6th of April 1978 can expect to receive their pension at 68.
Before then, it is not possible to claim a pension from the Government if you decide to stop working and retire, even if you qualify for early retirement due to ill health.
Is it taxable?
State Pension is taxable but tax is not deducted from your pension because you receive it gross. However, if your income - whether you receive a pension or income from self-employment - once you retire exceeds the personal allowance tax band, then you pay tax.
For example, you've reached State Pension age and you continue to work part-time at a school while receiving your private pension. If these three sources of income combined exceed your personal allowance (which is £12,570 for 2021/22), then you're required to pay tax on the remaining income.
How much State Pension will I get if I never worked?
To qualify for a State Pension you need to have worked and made NI contributions in the past or earned NI credits, for a certain amount of qualifying years as explained above.
If you are unable to work, you can earn NI credits. These are given to people who:
- claim Child Benefit under the age of 12
- claim Jobseeker's Allowance or Employment and Support Allowance
- claim Carer's Allowance from the Government.
In order to not have any gaps on your record, you need to have a NI contribution and credit record for at least ten years for you to receive a State Pension.
Those who have a reason for not working and contributing National Insurance, such as due to illness, disability or being a carer, earn credits and consequently are eligible for a State Pension. Otherwise, citizens are not entitled to one when no Government contribution has been made.
Can I increase my State Pension?
If you receive a basic State Pension you can increase your pension income from:
- deferring your pension and receiving 1% increase in payments every five weeks you delay
- your spouse or civil partner under certain rules, or inheriting some of their pension when they pass away
- Additional State Pension which is given only to basic state pensioners.
Because of the changes to the new State Pension, you can neither have an Additional State Pension nor you can ‘contract out’ of it to get a higher private pension. Before the 6th of April 2016, citizens receiving State Pension were entitled to Additional State Pension - or second pension. Many were contracting out of it and instead were receiving extra pension from their workplace or personal pension. This way of increasing your pension income is no longer possible.
After the 6th of April 2016, people who receive the new State Pension can increase their income by:
- deferring their pension
- applying for National Insurance credits if you have gaps on your record due to reasons stated above
- investing in a private pension pot yourself
- Voluntarily make National Insurance contributions to fill in gaps in your record and receive as much State Pension as possible.
Although the State Pension is not substantial for a comfortable living, it is important that you claim it when the time comes and that you also save in another pension pot for your future self.
