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State Pension

(Please note – this is for information only and does not constitute advice. This is a potentially complex area and for further information or to obtain a State Pension statement please visit the government website at https://www.gov.uk/browse/working/state-pension)

About the state pension

A State Pension is a regular payment made by the government to people who have paid or been credited with Class 1, 2 or 3 National Insurance Contributions and have reached State Pension age.

State Pension Age

Currently, the State Pension age for men is 65 and 63 years and nine months for women. The State Pension age for women will increase to 64 years and six months by April 2018. By October 2020, the State Pension age for men and women will be 66, increasing to age 67 in 2028.

The State Pension is paid whether the claimant is working or not and is paid regardless of any income and/or existing savings or capital the claimant may have.

Claiming the State Pension

The State Pension must be claimed — it is not paid automatically. The claim can be made online, by calling 0800 731 78098 or by downloading a form and sending it to a pension centre. N.B. Different arrangements apply in Northern Ireland.

Payment frequency

The State Pension is usually paid every 4 weeks, in arrears, directly into the claimant’s bank or building society account.

Working beyond State Pension age

The State Pension can be claimed even if the individual chooses to work beyond State Pension age.

The State Pension may be taxable

The State Pension is considered part of the recipient’s earnings and may be subject to income tax.

Postponing the State Pension

It is not compulsory to claim the basic State Pension at State Pension age — it can be deferred until the claimant chooses to receive it. In return for ‘postponing’ his or her claim (and providing the claimant lives in the EU, European Economic Area, Gibraltar, Switzerland or any country the UK has a social security agreement with) the pension payment will increase by 1% for every 9 weeks it is deferred.

Claiming the State Pension while living overseas

Although the State Pension can be claimed while living outside of the UK, it will only be increased each year if the claimant lives in the EEA, Switzerland or in a country which has a social security agreement with the UK.

Basic State Pension on death

Any surviving spouse or civil partner that is over State Pension age and not already receiving the maximum payment may be able to increase their State Pension by using the deceased’s qualifying years. If the spouse or civil partner is under State Pension age, any State Pension based on the deceased’s qualifying years will be included when he or she claims their own State Pension.

There are currently two State Pension systems — each system has different rules.

The State Pension for individuals reaching State Pension age prior to 5 April 2016 (‘old’ State Pension).

This summary applies only to women born before 6 April 1953 and men born before 6 April 1951. Different rules and benefits may apply for people living in the Isle of Man, Northern Ireland and abroad.

Maximum payment

For the financial year 2017/2018, the full rate of benefit for women born before 6 April 1953 and men born before 6 April 1951, is £122.30 per week.

The payment is increased every year by whichever of the following three percentages is the highest:

  • the average percentage growth in wages in Great Britain
  • the percentage growth in the Consumer Price Index
  • 2.5%

National Insurance Contribution record

The amount of State Pension a person receives is based on the total number of annual National Insurance Contributions (NICs) paid in the UK by him or her prior to reaching their State Pension age.

To be entitled to the full State Pension, it is necessary to have 30 ‘qualifying years’ of NICs or credits. A qualifying year is a tax year in which the claimant has paid or been treated as having paid or has been credited with sufficient NICs to make that year qualify in State Pension calculation terms.

Each qualifying year entitles the claimant to 1/30 of the full State Pension.

If there are ‘gaps’ in his or her NIC record, the claimant will get less than the full amount of £122.30 a week. NIC gaps can be caused by being employed but with low earnings, being unemployed but not claiming benefits, caring for someone full time, being self-employed and choosing not to pay NICs, or living abroad.

Bridging the contribution gap

Depending on the claimant’s age, it may be possible to pay voluntary NICs to bridge some or all of the  gaps in his or her National Insurance record over the past 6 years or beyond.

The new State Pension (for individuals reaching State Pension age after 5 April 2016)

This summary applies only to women born on or after 6 April 1953 and men born on or after 6 April 1951. For individuals who are already claiming a State Pension, or reached State Pension age before 6 April 2016, the old State Pension rules apply. Different rules and benefits may apply for people living in the Isle of Man, Northern Ireland and abroad.

Maximum payment

For the financial year 2017/2018, the full rate of benefit for people reaching State Pension age, on or after 6 April 2016, is £159.55 per week.

Unlike the old State Pension, the new State Pension will not be subject to additional pension-related benefits, such as the State Second Pension (S2P) and the State Earnings Related Pensions Scheme (SERPS). The new State Pension will instead provide a single tier of benefit.

The payment is increased every year by whichever of the following three percentages is the highest:

  • the average percentage growth in wages in Great Britain
  • the percentage growth in the Consumer Price Index
  • 2.5%

National Insurance Contribution record

The amount of State Pension a person receives is based on the total number of annual National Insurance Contributions paid in the UK by him or her prior to reaching their State Pension age.

To be entitled to the full State Pension, it is necessary to have 35 ‘qualifying years’ of National Insurance Contributions (NICs) or credits. A qualifying year is a tax year in which the claimant has paid or been treated as having paid or has been credited with sufficient NICs to make that year qualify in State Pension calculation terms.

Each qualifying year entitles the claimant to 1/35 of the full State Pension.

If there are ‘gaps’ in his or her NIC record, the claimant will get less than the full amount of £159.55 a week. NIC gaps can be caused by being employed but with low earnings, being unemployed but not claiming benefits, caring for someone full time, being self-employed and choosing not to pay NICs, or living abroad.

Bridging the contributions gap

Depending on the claimant’s age, it may be possible to pay voluntary NICs to bridge some or all of the  gaps in his or her National Insurance record over the past 6 years or beyond.

National Insurance Contributions made before 6 April 2016

The claimant’s National Insurance record before 6 April 2016 is used to calculate a ‘starting amount’ for their pensions. The starting amount will be the higher of the amount he or she would get under the old State Pension rules (less any Additional State Pension) or the amount they would get if the new State Pension had been in place at the start of their working life. If the starting amount is less than the full new State Pension, the claimant is allowed to add more qualifying years to their National Insurance record.

National Insurance contributions made after 6 April 2016

Individuals starting to make NICs from 6 April 2016 onwards, will need 35 years of NICs or credits to claim the full amount of state pension. Those with 10 – 34 years of contributions will receive a proportion of the full State Pension and anyone with less than 10 years of contributions will not be entitled to any amount of State Pension.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

To find out more about state pensions, speak to an adviser today on 01476 591022 or book a consultation below.