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State Pensions

Make the most out of retirement
pension pot

Thereís no getting away from it, the state pension is not easy to understand. This guide helps you find out what it is, whether you qualify for it, and how much you'll get. It'll also tell you when you can expect to start claiming your pension.

We also tell you how you can boost the amount of state pension you'll get - paying a few hundred quid now could lead to a gain of thousands later on, for some. We'll tell you how, including a calculator to help you find if it's worth it.

IMPORTANT! This guide is based on current pension rules in 2014-15. The Government has announced radical changes to the state pension to create a flat-rate state pension (more details of which can be read in the state pension reform news). The new flat-rate pension will be introduced in April 2016.

State pension need-to-knows

The basic state pension is a Government-administered scheme, funded by national insurance (NI) contributions, to give people who've reached state retirement age a guaranteed weekly income - currently just over £113 a week for a single person.

  1. The state pension is a set weekly income until you die

    The state pension is designed to give those who have reached the Government-defined retirement age a guaranteed weekly income. The current retirement age is 62 for women and 65 for men but both are rising soon (see the MSE Pension age to rise to 68 story).

  2. The state pension is funded by national insurance contributions

    The basic state pension is a Government-administered scheme. The amount youíre entitled to is calculated by the number of NI years youíve accumulated. You earn a qualifying year by working and paying NI contributions in that year, if youíre a carer, or if youíre on certain benefits.

  3. The most you'll currently get from the basic pension is £113 a week

    However, if youíre short of your NI years you wonít get the full amount. The amount rises every April based on the previous Septemberís inflation rate (using the Consumer Prices Index), the increase in average earnings, or 2.5% - whichever is highest.

    You can increase your weekly income from £113.10 if you qualify for savings or pension credit.

  4. When you get the state pension depends on when you were born and your gender

    You'll qualify for the state pension at the Government's official retirement age, which depends on when you were born and your gender.

    The official retirement age is gradually being raised, so while many women currently get it at 62 and men at 65, this age will rise to 66 for both genders by 2020, 67 by 2028 and possibly even 68 by the 2030s.

    To find out when you'll get your pension, use the Government's State Pension Age Calculator.

  5. You don't have to take your state pension straight away

    Delaying the date you start to take your state pension is one of the ways you can boost it. (see how to boost your pension below).

  6. You should be sent a claim form four months before your pension age

    The Pension Service should automatically send you a claim form four months before you reach the official retirement age. Your pension is paid directly into your current account. If you donít receive the forms, call 0800 731 7898.

The most important thing to understand about the state pension for those who qualify is:

The basic state pension is NOT means tested. It doesn't matter what your former salary was or how much you've got in savings.

Instead, the amount you receive depends on a number of factors, most importantly the amount of NI you've contributed over the years and the age you start collecting it.

Therefore for some, it's possible to massively boost what you receive by making small additional top up contributions, or delaying the start of your pension. But to make that decision, it's important to first understand how the state pension works.

You can get a second state pension too

The state second pension is an extra amount of money you could get with your basic state pension, based on your NI contributions.

How much you get depends on your earnings and whether youíve claimed certain benefits. Thereís no fixed amount like the basic state pension.

The maximum you could get in 2014/15 is £163 a week. This is in addition to the maximum basic state pension of £113.10, which could potentially take your total state pension to £273.10/week.

The second state pension is paid with your basic state pension and you get it automatically, unless youíve contracted out of it.

Check if you're eligible for the second state pension.

Contracting out of the second state pension

You can only contract out if your employer runs a contracted-out pension scheme, so youíll need to check with it.

If youíre a member of a contracted-out workplace pension you donít contribute to the second state pension for the time you belong to the scheme.

This means that when you retire you either donít get any second state pension, or it might be reduced - depending on how long you contracted out for.

You and your employer pay lower National Insurance contributions while you contract out.

To contract out you must be:

  • Earning at least the lower earnings limit of £5,772 a year (in 2014/15)
  • Paying Class 1 NI (or treated as paying them - check with your employer)
  • The second state pension is set to be abolished in 2016, when a new flat-rate pension will replace both the basic state pension and the second state pension. However, if you've built up second state pension contributions, you'll still be entitled to some of the benefit.

We've worked hard to make this guide easy to understand and accurate. So please give us your feedback, include anything that doesn't make sense or tell us where more info's needed.

Do you qualify for the state pension?

To get the FULL state pension you'll need to have worked for most of your adult life and paid NI contributions, or been on qualifying benefits. The amount you're entitled to is calculated by the number of NI qualifying years you've accumulated.

The qualification criteria changes with the year you were born. If you have a shortfall you will receive a letter from HM Revenue & Customs (HMRC) once a year to inform you of it.

What is a qualifying year?

To gain a qualifying year, you need to earn a set minimum during a tax year (6 April to 5 April) and pay the required NI contributions. For 2014/15, this is:

  • £5,772 for employees
  • £5,885 for the self-employed

In past years, the amount was, of course, lower, but it has always been at a similar figure in relation to average salaries. So only those on very low wages may have missed out.

If you were working full time, even on the minimum wage, or even just a few days a week throughout the year, it's likely you earned a qualifying year.

How many qualifying years do you need?

This depends, as the amount needed reduced in 2010 and will change again in 2016.

If you'll reach (or did reach) state pension age between 2014 and 2016 you'll need 30 qualifying years to get the FULL basic pension.

If you reach pension age in 2016 or later, you'll need 35 years.

Quick questions:

What about full time parents & those who can't work?

I don't have enough qualifying years, what will I get?

What happens to my pension if I retire abroad?

I'm transsexual, will this affect my state pension?

When do you get the state pension?

You qualify at the Government's official retirement age, which depends on when you were born, and your gender, though you needn't start taking the pension at that point.

The official retirement age is gradually being raised, so while many women currently get it at 62 and men at 65, in a few years, this will rise to at least 66 for both gender by 2020, and possibly to 68 in 2030s.

The state pension age for men and women
Born Official retirement age
Male
Before 6 December 1953 65
On or after 6 December 1953 It will rise from 65 to 66 between December 2018 and April 2020
Female
Before 6 April 1950 60
On or after 6 Apr 1950 The current state pension is increasing from 60 to 66 by April 2020.

To find your exact retirement age see the Government's State Pension Age Calculator.

How much money will you get?

There's a complicated maze surrounding the amount you get, but here's a brief summary:

A single person in 2014/15 will get £113.10 a week of basic state pension - that's £5,881 a year.

If youíre married, and both you and your partner have built up the full number of state pension qualifying years, youíll get double that amount so £226.20 a week.

But, if you're married and your partner hasn't built up their own state pension, they'll still be able to claim a state pension based on your record. The maximum in this situation is £67.80 a week (meaning you will get up to £180.90 between you).

If you're on a low income, you can boost your basic state pension by claiming pension credit. This will take your income in 2014/15 up to £148.35 a week for a single person and £226.50 a week for a couple. For more info on pension credit, see the full Pension Credit guide.

But, there's another crucial fact to remember...

The basic state pension is taxable, but if you don't have any other income, you won't be taxed. You only start to pay tax if you earn more than £10,500 (the tax-free allowance for pensioners is slightly higher than those aged under 65).

If you defer your pension any lump sum income you take is taxed differently.

The figures above are only rough guides as many other variables affect the amount that you will get. You can try Gov.UK's calculator for an indication. The best way to find out is to ring 0800 731 7898 (option 1).

Quick questions:

Will pension income affect my benefit entitlement?

Does my pension payment increase every year?

What happens when I die?

How can you boost your pension?

There are two ways you can boost the amount of state pension you'll receive, but both need to be considered carefully before deciding what to do.

  1. Delay taking out your state pension

    You can put off claiming your basic state pension. This can be especially useful if you're still working, as it means you'll get larger pension payments later. You can also defer receiving payments once you've already started claiming, though be careful, as you can only do this once.

    If you choose not to take your pension straight away when you reach state pension age. There are two different ways you can take the benefit:

    • Choose a bigger pension later

      For every five weeks you delay claiming, your future weekly allowance is increased by 1%. So delay for a year and you get the full pension plus 10.4% extra. Though the amount isn't compounded - so you don't get the increase on the increase.

      In July 2014, the Government announced it wants to drop the rate to 5.8% for people retiring in 2016 or later. These are only proposals so far, and need to be consulted on before they're law. We'll update the guide when that happens, but you can read more on the proposed changes in our 'deferring your pension set to be worth less' news story.

    • Get it as a lump sum

      As long as you've deferred for at least a year, and began to defer after 5 April 2005, you can choose a lump sum. This is made up of the deferred payment plus interest at 2% above the base rate (this time it's compounded). After collecting the lump sum, you then get the standard pension. Any lump sum payment cannot push you into a higher-tax bracket so will be taxed at the same rate as your other income.

    Is it worth deferring to increase the payout?

    The answer to this, unsurprisingly, isn't simple. It's sometimes worth deferring as you may get a larger overall payout. In general, the longer you live the more beneficial it becomes, so it's a decision you'll need to make based upon your circumstances and it's a bit of a gamble.

    If you'd like to defer, contact the Pension Service on 0800 731 7898 (option 1).

    Quick question:

    How long am I likely to live?

  2. Buy more pension years

    It's possible to pay to replace some missing NI qualifying years, or part years, which could mean a massive increase in your basic state pension payout.

    For some, buying NI years now could mean more than £1,000 a year extra.

    Before buying extra years, remember that the Government is discussing radical changes to the state pension to create a flat-rate payout. But it says those who pay to boost their pension will not lose out.

    However, firm details of the transition arrangements for those affected by the increase in NI years are not available yet. We will update this guide once we know more.

    A. How many NI years do you have?

    This is the key that defines whether it's worth bothering. HMRC should send out notices to people with NI gaps.

    If you haven't received one or can't find it, don't worry. You can check whether you have any gaps online by getting a State Pension Forecast or call the Future Pension Centre on 0845 3000 168 and it'll send you a statement.

    Anyone with the full complement should already be getting the full basic state pension, so won't need to buy any more. The years needed for a full basic state pension are:

    Men Women
    Retired pre-6 April 2010 44 39
    Retired on or after 6 April 2010 30 30
    Retiring on 6 April 2016 or after 35 35

    If you've got fewer than the maximum, read on.

    B. Do you qualify for pension credit?

    If you donít have enough money to buy additional NI years and get the full state pension, this may be boosted when you apply for pension credit. All your money, including savings will be assessed, and if you donít have enough to buy extra NI years youíll be topped up to the full basic state pension and then get pension credit on top of that if youíre eligible. For full information on pension credit, see the Pension Credit guide.

    If you are eligible, pension credit will usually top you up beyond the full basic state pension, so you don't have to buy extra NI years. If you're not (call 0800 99 1234 to find out), read on.

    C. Could you be excluded from buying NI years?

    There are some who may not be able to, or shouldn't, buy additional years.

    • Can't buy enough to hit the minimum?

      If you have very few qualifying years and retired before April 2010, it may be you can't buy enough credits to hit the minimum. For instance, a man in that boat needs 11 years to get any state pension so if you can't reach that threshold by buying extra years, there is no point.

    • Pay reduced NI?

      Married women sometimes pay less (known as the 'small stamp' or 'married women's stamp'). If you're in this boat, you can't replace any missing years where you paid reduced NI for the whole year.

    • Able to claim via partner's contributions?

      If buying extra years won't beat the income you'd receive by claiming the couple's pension then don't do it.

      If you try to buy further years that would take you over the maximum, you'll normally be prevented from doing so by the Government.

    If none of these apply, find out how many years you can buy...

    D. How many years can you buy?

    If you're eligible, and you could benefit by boosting, it's time to get serious on the nitty-gritty. When buying extra years, you have to buy what are called class 3 NI contributions.

    There are two categories of years you can buy, but they don't apply to everyone.

    • The previous six tax years, plus the year you're in

      The quicker you are, the cheaper the price. If you buy within two years of the end of tax year you're purchasing, you pay that year's price, otherwise you'll pay today's price.

      For example, if you had bought the full 2010-11 year before 5 April 2013 you'd have paid the 2009-10 price, which was approximately £626 for a full year. However, if you buy it now, you'll pay the 2014/15 price which is £723.

      See full prices for each year.

    • Just retired or close to retirement?

      Some people can buy an additional six years from 1975-76 to 2003/04, on top of the last six years. This only applies to those who have reached, or will reach, state pension age between 6 April 2008 and 5 April 2015.

      To buy these extra years you must already have at least 20 qualifying years, and if you reach the official retirement age before 6 April 2010 you must generally have at least one year from paid employment.

      You pay the rate for the year you're in when buying these years, currently £723 a year. You have six years from the date on which you reach pension age to pay.

    • Affected by change in number of years needed?

      If you've only got 30 years and you're retiring on or after 6 April 2016, then you're not going to get the full amount of flat rate state pension. But you can buy the extra years you need and get a discount if you're affected.

      You have up until 5 April 2023 to make payments. If you make payments by 5 April 2019 you'll pay the contributions at the rate that applied in the 2012/13 tax year for the tax years 2006/07 to 2010/11.

      For the remaining years up to and including 2015/16 higher rate provisions will not apply until 5 April 2019. If you make payments after this, the rates may have increased.

    State pensions are complex, and it's not easy to tell whether you'll be better off by buying extra years or not. We've built the Pension Boosting Calculator (below) to help you work it out.

The Pension Boosting Calculator

This calculator is designed to give you a rough idea of the worth of topping up extra years if you don't qualify for the full basic state pension. However, it does not work well on a mobile phone, so if you want to use it, please return to this guide on a desktop computer. Why not email yourself this link so you can look at it later?

This calculator is designed to give you a rough idea of the worth of topping up extra years if you don't qualify for the full basic state pension.

See it more as a rule of thumb than an accurate answer, as we've made a number of assumptions to make it simple to use.

From 2016, the Government has said there will be a flat rate pension, of £144 a week, for everyone retiring after 6 April 2016, provided that they have 35 qualifying years.

It says those who pay to boost their pension will not lose out. However, some of the details - such as how it affects those who have the 30 years needed for those retiring between 2010 and 2016, but don't have the extra five years - still need to be ironed out.

See the state pension reform MSE News story for more information.

As there are too many unknowns after 2016, please only use this calculator if you are due to retire before 6 April 2016.

In order to use the state pension caclulator you must have javascript enabled
Gender:
 
Male Female
When did you, or will you, hit state pension age?
How many NI years have you got?
Which NI years do you want to buy?
(To select multiple years: Hold Ctrl Key and click mouse).
Important! This is only a rough estimate

It's important you understand the strengths and limitations of this calculator.  The aim is to let you see roughly the scale of the gain by topping-up your pension.

  • You use the information at your own risk and we can't accept liability if things go wrong.
  • We use the 2014/15 basic state pension payout (£113.10/week), but do not increase it for future years.
  • The prices for NI years are correct until 5 April 2014.
  • Before acting upon any information here, talk to the Pensions Service (0800 731 7898) to get a full appraisal.
  • Figures used are before deduction of income tax.

Please report any errors or suggestions to statepensioncalc@moneysavingexpert.com

The main assumption is you are an individual (this DOESN'T work for those claiming a couple's pension). We use the 2014/15 state pension amount (£113.10/week), but do not increase it for future years.

If, on the back of this calculation, it looks likely that you want to buy more years, then ...

Don't buy before first making additional checks.

Use Gov.UK's Pension Planning section before making any decision and go through a detailed plan. You can request an online State Pension forecast or call 0845 3000 168 to get one.