Are you starting to plan for your retirement? If so then it’s great to have all the facts when it comes to your state pension.
Here we explain everything you need to know about your state pension, how much you’ll get, how to claim it and if it’s possible to boost your earnings.
What is the state pension?
The state pension is designed to pay you a wage in retirement. It’s a weekly payment that varies depending on how long you’ve worked and how much National Insurance (NI) you’ve paid.
Who is eligible for the state pension?
The state pension is available if:
- You’re over state pension age, currently 66 but gradually increasing to 68
- You have at least 10 years of National Insurance contributions
How many years of National Insurance do I need for a state pension?
You’ll normally need at least 10 years of National Insurance contributions (NICs) to get some state pension and 35 years to get the full state pension.
You can also get National Insurance credits if you’ve taken time out as a full-time carer or stay at home parent, or you’ve had periods of unemployment. National Insurance credits count as if you’d paid National Insurance for that year and boost your state pension entitlement.
How to pay National Insurance
NI is collected automatically by your employer through the PAYE system. If you’re self-employed you’ll need to pay NI yourself through the self-assessment system.
You can also choose to pay top-up, or voluntary NICs to plug any NI gaps in the last 6 years.
How much state pension payment do I get each week?
The full state pension is currently £179.20 per week, but you might receive less if you’ve got gaps in your NICs .
Can I use child benefit to boost the state pension?
If you claim child benefit for a child under 12 years old then you will automatically get a NI credit for every year you claimed child benefit. And NI credits count as if you’d paid NI that year, so it can boost your state pension.
It’s important to still claim child benefit even if your partner earns over £50,000 because it will increase your number of qualifying years for the state pension.
How is the state pension calculated?
The state pension is calculated based on your qualifying years – that means years when you’ve paid NICs or got a NI credit.
It’s calculated like this:
- Full pension of £179.60 divided by 35 = £5.13 (entitlement per qualifying year)
- £5.13 multiplied by your qualifying years
Here are some examples:
- Sasha worked and paid National Insurance for 40 years. She has over 35 years of National Insurance contributions so will get a full state pension.
- Andre was self-employed for 10 years; he took a 10-year career break and claimed child benefit; then he worked for another 15 years before retiring. He only contributed 25 years of National Insurance payments, but because he claimed child benefit he has 10 years of National Insurance credits. He can claim the full state pension.
What is a National Insurance credit?
National Insurance credits allow you to build up your state pension entitlement when you can’t work. You can get them if you claim certain benefits including:
- Child benefit for a child under 12
- Jobseeker’s allowance
- Carer’s allowance
What changed in April 2016?
In April 2016 the way state pensions are calculated changed, simplifying the system. There is now one full state pension instead of separate basic and additional state pensions.
If you retired before April 2016 then the amount you’ll get is based on the old rules. If you retire after April 2016 your state pension will be based on the new system (you may get slightly more if you’ve built up additional state pension entitlement under the old system).
Here’s a summary of the main changes:
|Old rules||New rules|
|When do they apply?||Retiring before 6 April 2016||Retiring on or after 6 April 2016|
|How many qualifying years?||Between 30 years and 44 years depending on when you retired||35 years to receive a full pension of £179.20 per week|
|Full state pension||No, you will receive either basic state pension or basic and additional state pension||Yes, if you have 35 qualifying years|
|Basic state pension||Yes, you will receive £137.60 per week if you have enough qualifying years||No|
|Additional state pension||Yes, if you contributed to a state second pension, state earning related pension scheme or state pension top up before 5 April 2017. The amount varies depending on your circumstances||No, but you may get slightly more pension if you’ve built up entitlement to additional state pension before April 2016|
When can I access state pension?
You’ll start getting state pension when you reach state pension age, which is currently 66 years old.
What is the current state pension age?
The current state pension age is 66 for both women and men. The state pension age is increasing to between 67 and 68 if you’re born after 5 April 1960.
Is the state pension taxed?
State pension is taxed in the same way as other income. You will still get a tax-free personal allowance (currently £12,570) and anything over this is taxed at 20%.
How do I claim the state pension?
You need to claim state pension as you won’t get it automatically. You will get a letter 2 months before you reach state pension age explaining what to do next.
You can claim your state pension online, by phoning up for a form or by printing out a form from the government website.
Can I claim the state pension early? If so, what’s the effect of doing that?
You can claim state pension up to 4 months before you reach state pension age but you won’t receive it until you reach state pension age.
What is a state pension forecast?
A state pension forecast sets out how much state pension you might get when you retire. You can apply for a forecast through the government website. You can also apply by printing off a form and posting it, or applying over the phone.
Here’s a summary of what the state pension forecast will show and what to do if there’s a mistake.
|What the forecast shows||What to check for|
|How much state pension you could get||This is an estimate so may not be completely accurate|
|Your qualifying years of National Insurance contributions or credits||Check to see if you could claim extra National Insurance credits. Not all credits are added automatically|
|What age you will get state pension||State pension ages are gradually increasing from 66 to 68|
|How to increase it||You might be able to pay voluntary National Insurance contributions|
How can I boost my state pension?
If you don’t have 35 qualifying years, you may be able to boost your state pension by paying voluntary National Insurance contributions. It costs between £156 and £800 in National Insurance voluntary contributions to buy an extra qualifying year but you could get £267 extra per year in state pension. You need to act quickly as you can usually only pay voluntary contributions relating to the last 6 years.
You can also boost your state pension by deferring it. It can be a great deal because your pension will increase 1% for every 9 weeks you defer. The extra amount is paid once you apply for your state pension.
If you’re over state pension age and on a low income you may be able to apply for pension credit. Pension credit is means tested and currently boosts your income to £177.10 per week.
If you’ve worked for 35 years or more you will probably get the full state pension of £179.20 per week from the state pension age, which is currently 66. But watch out, because the state pension age is gradually increasing to 68.
It makes sense to get a state pension forecast to see where you stand. Then you can plan for retirement knowing how much state pension to expect.
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