Top 10 things you need to know about your state pension

Most of us are entitled to the state pension, but how much do you actually know about it? Faith Glasgow explains the most important points.

1. What is the state pension?

State pension is a basic retirement income from the government, based on the national insurance (NI) contributions you’ve paid during your adult years. It’s paid for the rest of your life once you reach state pension age. Payments are usually made every four weeks in arrears.

The pension system was revised in April 2016, so there are actually two state pensions running in tandem; it’s complex, but the one you receive depends on your age. The new state pension is available to men born on or after 6 April 1951, and women born on or after 6 April 1953.

2. How much is it worth this tax year?

For the current tax year (2021/22), the full new state pension payment is £179.60 per week (£9,339.20 a year), although you may not get that much if you have not built up enough national insurance contributions.

If you were born before those dates I’ve mentioned, you’ll receive basic state pension at £137.60 a week (£7,155.20 a year). You may have built up some Additional State Pension (also known as S2P or SERPS) separately, in which case you’ll receive more. You may also be eligible for pension credit (see below).

The government’s website includes a tool to check how much state pension you should get.

• Watch the first episode of Pensions Unpacked: jargon against the clock 
• Read the Great British Retirement Survey  2021 report here.

3. How is the amount I’ll receive worked out?

The amount you’ll get depends on the number of qualifying years of NI payments you’ve made. You normally need at least 10 qualifying years of NI contributions to get any pension, and a full new state pension requires at least 35 qualifying years. If you have more than 10 years but fewer than 35, you’ll get a proportion of the full sum.

A qualifying year is one in which you were either working and paying NI, or getting NI credits (for example, if you were unemployed on benefits, ill or a carer), or making voluntary NI contributions (for example, because you were living overseas).

National insurance payments stop after you reach state pension age, even if you’re still working.

You can check your national insurance record online.

4. Can I top up my NI contributions?

If you check your NI record and find you have gaps in it that mean you won’t qualify for the full new state pension, you may be able to pay voluntary contributions that will cover some or all of them.

It won’t always be possible to top up. Normally you can only make contributions for shortfalls in the past six years.

And it may not even make sense - there’s no point topping up past years, for example, if you’ll reach 35 qualifying years of contributions before you retire. However, you could consider voluntary payments if, for instance, you know you won’t be working for enough years to accrue 35 qualifying years of contributions.

Most people make voluntary NI contributions known as Class 3 payments, which cost £800.80 for the full 2021/22 tax year. Each additional qualifying year will provide an additional £5.13 a week of state pension, at current rates; if you lived a further 20 years, you’d receive an extra £5,000 for that £800 payment, so it’s great value for money provided you live longer than the first few years of retirement.

Do talk to someone at the Future Pension Centre on 0800 731 0175 to find out if it is a good idea for you, though.

• Visit our Pensions and Retirement Hub
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5. What if I’m self-employed?

Employees have national insurance deducted at source, so they don’t have to worry about it. Self-employed people, in contrast, generally pay national insurance through their self-assessment forms.

There are two rates if you take this route, depending on how much profit you’ve made. If your profits are more than £6,515 in a year, you’ll pay Class 2 contributions, currently £3.05 a week. If they’re above £9,569 and below £50,270, you’ll pay Class 4 contributions at 9%. Profits over £50,270 are charged at 2%.

6. When can I claim state pension?

For many years, state pension was paid at 60 for women and 65 for men, but rising life expectancy and an ageing population have raised concerns that payments may not be sustainable in the long term.

The government therefore introduced a timetable to rapidly increase women’s state pension age from April 2010 to 2018, when it reached 65 in line with men. This hit many women born in the 1950s (known as WASPI women) hard, as they were unable to stop working and claim state pension at the age they had expected to.

Since October 2020, both men and women’s state pension age has been raised to 66. It will continue to rise gradually, reaching 67 in 2028 and 68 between 2044 and 2046 as things stand (although this may be brought forward to 2037-39). There is a complicated pension timetable in place for those who will turn 66 before 2028.

You can find out when you’re eligible to collect your state pension here.

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7. How is state pension protected from inflation?

The coalition Tory/Lib Dem government introduced the so-called triple lock guarantee for state pension increases in 2010, to ensure pensioners’ income did not lag behind either cost of living increases or wage increases for employed people. This government has promised to retain it during this Parliament.

Under the triple lock, state pension rises each April by the highest of the following:

• inflation (consumer price index) in the year to the previous September
• average wage increases over the same period
• 2.5%

However, the coronavirus pandemic led to an 8% increase in average earnings over the year, as people were furloughed on lower than usual pay and then returned to regular pay.

The government therefore suspended the wage element of the triple lock for this year, and pensioners are on track to get a rise of 3.1% in April 2022, in line with inflation in the year to September.

8. How do I get my state pension?

Very easily. But it won’t happen automatically - you have to take action.

You should receive an invitation letter about how to claim it at least two months before you are eligible. The quickest way is to go to the government website and claim your state pension there, but you can also phone or write.

It will be paid directly into your bank, building society or Post Office account by direct debit.

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9. Can I delay taking it?

Yes, you can - and it’s a way to boost the pension income you eventually receive.

The amount of state pension you receive will increase by 1% for life, for every nine weeks of deferral. If you defer for a full year, that amounts to a boost of 5.8%, which translates into an extra £10.42 a week on the current pension.

Alternatively, provided you defer for a complete year, you can claim it as a single lump sum, in which case you’ll also receive interest at 2% above base rate.

To defer receiving your state pension, simply do nothing and it will automatically be held until you initiate your claim. 

10. What’s the deal with pension credit?

If you’re a pensioner on a low income (which includes state pension and other pensions, as well as any earnings and some benefits), you may be eligible for extra help through pension credit.

This extra cash will top your income up to £177.10 a week if you’re single, or to £270.30 a week for couples. Additional sums may be paid if you have other responsibilities (as a carer or family childminder, for example).

You may still be able to claim if you have some savings put aside. Savings of up to £10,000 do not affect the amount you’re due, but above that sum the amount of pension credit you’ll get is tapered, with every £500 of savings counting as an additional £1 of weekly income available to you.

If you live with a partner, you need to fill in the application form to include your joint circumstances. You’ll be eligible for pension credit if you’ve both reached state age, or if one of you is a pensioner getting housing benefit.

Find out how much you might receive using the government’s pension credit calculator.

• Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)