Amy | Edited by Sam D
Updated April 2017
The state pension has been overhauled - and a brand new flat-rate ushered in on 6 April 2016. But not everybody has benefited, including millions of older men and women who have already retired.
Our guide will help you understand whether you're on the old or new state pension system, explain how much you're likely to get and show you how you can boost it.
In this guide...
This is the first incarnation of this guide. Please suggest any changes or questions in the Old State Pension discussion. Thanks to Alan Higham of PensionsChamp and Danny Cox of Hargreaves Lansdown for their help with the guide.
What is the old state pension?
The basic state pension is a Government-administered scheme, funded by national insurance (NI) contributions.
It gives people who've reached state retirement age before April 6 2016 a guaranteed weekly income - currently £122.30 a week - until they die.
But instead of a flat-rate payout like the new £159.55 a week, the old state pension is made up of two parts.
The first element is the so-called 'Basic' state pension.
This is simply worked out by totting up the number of eligible NI years you have.
These qualifying years are earned by working and paying NI contributions in a given year, if you’re a carer, or if you’re on certain benefits.
The most basic state pension you can currently earn is £122.30 a week, a maximum level which rises every April by the biggest of the following:
- inflation in the previous September (using the Consumer Prices Index);
- the increase in average earnings;
- or 2.5%.
This is known as the 'triple lock' - a device to ensure older generations get the best deal possible.
The second element is known as the Additional state pension.
This extra payout is called either Serps (state earnings-related pension scheme), S2P or the State Second Pension.
Like the basic state pension element, it is based on your NI contributions.
How much you get largely depends on what your salary was throughout your career and, to a lesser extent, whether you’ve claimed certain benefits such as child benefit or carer's credit.
The maximum you could get in 2016/17 was £160 a week. Remember, this was on top of the maximum basic state pension of £122.30 - and could have potentially taken your total state pension to £280 a week (for a single person). Most people, though, don't get anywhere near this amount.
You get the Additional state pension paid automatically with your basic and it increases every year with inflation.
Do I qualify for the old state pension?
To qualify for the old state pension you need to have worked and paid NI contributions, or been on qualifying benefits.
In other words, to get the full basic state pension you'll need to have worked for most of your adult life and paid NI contributions, or been on qualifying benefits.
The actual amount you're entitled to is calculated by the number of NI qualifying years you've accumulated. So if you've got 20 years' worth, you'll get roughly two thirds of the full amount.
What counts as an NI 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 2017/18, the minimum is:
- £5,876 for employees.
- £6,025 for the self-employed.
In past years, the amount was of course lower but it has always been 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 had a job for a few days each week throughout the year - it's likely you earned a qualifying year.
What about full time parents & those who can't work?
If you're looking after children, or unable to work, this is taken into account. You may be eligible for NI credits, which count as a qualifying year.
These are normally automatically awarded for the weeks you were claiming and receiving any of the following benefits: carer's allowance, jobseeker's allowance, incapacity benefit, employment and support allowance.
You also get them if you are a full-time parent who claims child benefit for someone under 12, or a full-time carer who claims income support.
Credits for parents and carers replaced Home Responsibilities Protection from 6 April 2010.
If you reach(ed) state pension age on or after 6 April 2010 and you had years of Home Responsibilities Protection before 6 April 2010, these years have converted into credits, up to a maximum of 22 years. These will go towards your basic state pension.
I don't have enough qualifying years, what will I get?
You may still be entitled to a PARTIAL state pension, but it depends on when you hit retirement age and how many qualifying years you have.
Retirement age hit BEFORE 6 April 2010:
If you had fewer than 25% of the qualifying years (44 for a man, 39 for a woman) then you wouldn't be entitled to a basic state pension. If you have 25% or more, it's likely you're getting an approximate pro-rata weekly income. In other words, if you'd half the qualifying years you'd get roughly half the full state pension.
However, if you don't qualify for the basic state pension and have no other income you're usually eligible for pension credit, which ensures you receive a guaranteed minimum income. Plus, if you're over 80 and qualify for less than £66 a week, you'll still get a minimum £66. See the full Pension Credit guide for more information.
Retirement age hit on or AFTER 6 April 2010 (but before April 2016):
If you have at least one qualifying year, you'll get a thirtieth of the full amount for each qualifying year. Therefore, if you've eighteen qualifying years you'll get 18/30th (three fifths) of the FULL state pension.
Retirement age hit in April 2016 or AFTER:
You will need to have at least 10 qualifying years to get anything, but this will only entitle you to £41 per week. If you have between 10 and 35 qualifying years, you'll get a pro-rata rate - so if you've 25 years, you'd get £111 (25/35ths of the FULL flat rate pension of £155).
If you haven't got any other income or savings, this doesn't mean you won't get any more from the state. The pension credit benefit guarantees a minimum income for those with little earnings.
However, you can boost your pension by buying qualifying NI years - we detail how, when and whether you should do this below.
What happens to my pension if I retire abroad?
Once you reach the official retirement age you can claim your state pension, no matter where you live. However, what happens then depends on where you retire to.
In some countries, your pension will be frozen at the amount you're able to claim in the year you leave the UK. Which may be fine now, but future inflation's likely to mean that you get less and less in real terms with each passing year.
To continue to get pension rises as if you're in the UK, you'll need to retire to:
Any country in the EU, Barbados, Bermuda, Bosnia-Herzegovina, the Channel Islands, Croatia, Isle of Man, Iceland, Israel, Jamaica, Liechtenstein, Mauritius, Montenegro, Norway, the Philippines, Serbia, Switzerland, Turkey, the United States of America or Macedonia.
Retiring to popular destinations like Canada, Australia, South Africa & New Zealand mean your pension won't be increased each passing year, as it would have done if you stayed in the UK.
I'm transgender, will this affect my state pension?
Your state pension might be affected if you’re transgender and you:
- Were born between 24 December 1919 and 3 April 1945
- Were claiming state pension before 4 April 2005
- Can provide evidence that your gender reassignment surgery took place before 4 April 2005
You don’t need to do anything if you legally changed your gender and started claiming state pension on or after 4 April 2005 - you’ll already be claiming based on your legally-recognised gender.
When will I get the old state pension?
You qualify for the payout at the Government's official retirement age - but this isn't set in stone.
Yet for decades after 1940, it was: men received it at 65, women at 60.
But in 1995 the then Government decided to equalize the ages, starting in 2010 and rising in staggered dates - often rising by months at a time. By April 2016, it had risen for women from 60 to 63 while staying at 65 for men.
This has triggered confusion for millions of women who've struggled to work out when they're due their pension.
Two women born within months of each other could be eligible for the state pension at different dates. To find your exact retirement age see the Government's State Pension Age Calculator. However, what is simple is the fact that the age at which everybody can claim it is rising.
The state pension age for men and women
|Born||Official retirement age|
|Men||Before 6 December 1953||65|
|On or after 6 December 1953||It will rise from 65 to 66 between December 2018 and April 2020.|
|Women||Before 6 April 1950||60|
|On or after 6 April 1950||Rising from 60 to 66 by April 2020.|
How much state pension will I get?
There's a complicated maze surrounding the amount you get, but here's a brief summary:
- A single person in 2017/18 will get £122.30 a week of basic state pension; that's £6,359.60 a year .
- If you're married, and you and your partner have built up the full number of state pension qualifying years, you'll get double that amount, so £244.60 a week.
- If you're on a low income, you can boost your state pension by claiming pension credit; this can take your income up to £159.35 a week for a single person (2017/18 figs). 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 £11,500 (in the 2017/18 tax year)
That said, 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 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).
Will pension income affect my benefit entitlement?
Yes. A pension counts as if it were any other income so will affect your entitlement to pension credit, housing benefit or council tax support. See the Benefits Check-Up guide.
Does my pension payment increase every year?
Yes. It rises every April. To try to be fair, there's a system called the 'triple-lock' in place at the moment. This means every April the basic state pension amount increases by the highest of the previous September's inflation rate (based on the Consumer Prices Index), the increase in average earnings, or 2.5%. The ‘triple-lock’ is expensive and its future is under review.
However, your pension may not increase every year if you retire to certain countries outside the UK.
How can I boost my state pension?
There are four ways you can boost the amount of state pension you'll receive, but all need to be considered carefully before deciding what to do.
1. Defer taking 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 state 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 straightaway when you reach state pension age, there are two different ways you can take the benefit:
Choose a bigger weekly pension...
For those who qualified for the state pension age before April 6 2016 and opted to delay, a year's wait was worth the full value of that year's state pension plus 10.4% extra.
It worked out that, for every five weeks you delayed claiming, your future weekly allowance was increased by 1%. So delay for a year and you'd have got the full pension plus 10.4% extra.
However, those who reach state pension age on or after 6 April 2016, have not been given such a generous deal.
Now the 1% rate of increase for deferring your state pension only applies for every nine weeks you delay - not five. This works at an annual boost of 5.8% - a vastly lower benefit.
Here's an example: Jimmy would get a £122-a-week state pension if he claimed it as his state pension age. This is worth £6,344 a year.
But he decides he can manage without it for 12 months, and puts off claiming.
A year later, he qualifies for an extra £360.55 a year. If he lived for another 15 years, that's at least an extra £5,400 in pension payouts.
Or as a one-off lump sum later...
If you've reached your state pension age before April 2016, you've got the option to be able to defer and then be paid the extra as a one-off lump sum.
This is made up of the deferred payment plus interest at 2% above the Bank of England base rate . After collecting the lump sum, you then get the standard pension.
So someone who'd built up an annual state pension of £6,000 say would get £6,150 in twelve months' time - and then be paid their weekly payout as normal.
However, this lump sum option has been abandoned for those who become eligible for state pension after April 2016.
Is deferring actually worth it?
The answer to this lies in your longevity - and there's no crystal ball that can tell you how long you'll live. The Office for National Statistics produce a ‘How Long Will My Pension Need to Last' calculator, which shows that on average a man aged 65 has 21 years to live and a woman aged 65 has 24 years.
So the odds suggest that if you can afford to defer, you're probably better off doing so because the extra cash will be paid for long enough to make it worth it.
There are risks of course: put off claiming for five years and you'll have forgone £30,000 in income. Although you'll then get a higher state pension payout, if you were to suddenly die, you'd have lost out on a huge sum.
But if you're generally fit and healthy, it can be a canny way to boost your income in old age.
2. Buy more 'pension years' if you've already hit State Pension age
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.
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 calling the Future Pension Centre on 0845 3000 168 and it'll send you a statement.
The NI years needed for a full basic state pension are:
|Reached state pension age pre-6 April 2010||44||39|
|Reached state pension age on or after 6 April 2010||30||30|
|Reached state pension age on or after 6 April 2016||35||35|
If you've got fewer than the maximum, read on.
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 - itself a confusing concept, one the Government admits is tricky to understand - but they don't apply to everyone...
1. 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 the tax year you're purchasing, you pay that year's price, otherwise you'll pay today's price.
For example, if you were planning to retire a few years ago and 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'd delayed and then swooped to buy it in March 2016 instead, you'd have paid the higher 2015/16 price which was £733.20.See full prices for each year in this table.
Cost of buying additional NI years
|NI Year||Cost to buy now|
|2011/12 or before||£733|
|Rounded to nearest pound. In some cases, those who retired on or after 6 April 2010 get more time to pay at the rate for the year they're buying. Source: HMRC|
2. Just retired or close to retirement? Some people can buy an additional six years from between 1975/76 and 2003/04, on top of the previous six years. This only applies to those who reached state pension age between 6 April 2008 and 5 April 2015.
However, to buy these extra years you must already have at least 20 qualifying years.
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 simply can't buy enough to hit the minimum threshold for any kind of state pension payout - so it won't be worth it.
Paid reduced NI? Married women sometimes paid less NI (known as the 'small stamp' or 'married woman's stamp') in return for some maternity benefits. But those who signed up to this - often in the 1970s - can't replace any missing years where they paid reduced NI for the whole year.
Already at the maximum number of years? If you try to buy further years that would take you over the maximum number of years allowed, you'll normally be prevented from doing so by the Government.
How do I work out if it's worth buying extra years?
State pensions are incredibly complex, and it's not easy to calculate whether you'll be better off buying extra years or not.
You'll need to do a lot of research to work out if it's really worth your while.
Much will depend on various factors: how many existing years you already have; whether you can afford to give up the cash needed to buy the extra years; and make a judgment on your health (i.e. are you likely to live long enough to make it worthwhile?
We've a simple table to give you a rough idea of what to expect. However, everyone's circumstances are different so the figures are only an indication. As a general rule of thumb, each year you buy will boost your pension by up to £230/yr.
|No of missing NI years bought||Annual boost||Cost to you||Yrs to break even|
|*For those eligible|
3. Do you qualify for pension credit?
If you don't have enough money to buy additional NI years and get the full state pension, your pension may be boosted when you apply for pension credit. All your money including savings will be assessed, and if you don't have enough to buy extra NI years you'll be topped up to the full basic state pension and then get pension credit on top of that, if you're 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. Call 0800 99 1234 to find out.
Can the state pension be passed on when I die?
Your basic state pension cannot be passed on to someone else when you die.
If you have contributed toward the second state pension, your spouse or civil partner can inherit some of this, though it depends on when you were born. If you've no spouse or civil partner, any state pension you put off claiming becomes part of your estate. There are more details on how this works on the Gov.UK website.