State Pension (United Kingdom)

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The State Pension is part of the United Kingdom Government's pension arrangements. Benefits vary depending on the age of the individual and their contribution record.

Pensions in the United Kingdom can be categorised into three major divisions and seven sub-divisions, covering both defined benefit and defined contribution pensions.:

Contents


Background

Basic State Pension

The basic State Pension (alongside the Graduated Retirement Benefit, the State Earnings-Related Pension Scheme, and the State Second Pension) is payable to men born before 6 April 1951, and to women born before 6 April 1953. [1]

The State Earnings Related Pension Scheme (SERPS), originally known as the State Earnings Related Pension Supplement, was a UK Government pension arrangement, to which employees and employers contributed between 6 April 1978 and 5 April 2002, when it was replaced by the State Second Pension.

The State Second Pension (S2P), or Additional State Pension, was introduced in the UK by the Labour Government on 6 April 2002, to replace the SERPS. The main aim of this change was to skew existing Additional Pension (AP) benefits in favour of low and moderate earners at the expense of higher earners and to extend access to include certain carers and people with long-term illness or disability for the first time.

The maximum amount payable is £129.20 a week (8 April 2019 - 5 April 2020).

New State Pension

The new State Pension is payable to men born on or after 6 April 1951, and to women born on or after 6 April 1953. [2]

The maximum amount payable is £168.60 a week (8 April 2019 - 5 April 2020).

Contribution record

The State Pension is a 'contribution-based' benefit, and depends on an individual's National Insurance (NI) contribution history. To qualify for a full pension (amounts given above), an individual would require:

National Insurance

National Insurance (NI) is a tax system in the United Kingdom paid by workers and employers for funding state benefits. Initially, it was a contributory form of insurance against illness and unemployment, and eventually provided retirement pensions and other benefits. Citizens pay National Insurance contributions to become eligible for State Pension and other benefits. Anyone 16 years old and above are mandated to pay National Insurance provided the employee earns more than £162 a week or the individual is self-employed and makes a profit of £6,205 or more annually. It is necessary to obtain a National Insurance number before starting to pay contributions.

A smaller, pro-rata, pension is paid to someone with fewer qualifying years. People who were contracted-out paid lower NI contributions and will receive a lower state pension.

Pension uprating

The Basic State Pension is increased in April each year to pensioners living in the UK and in certain overseas countries which have a Social Security Agreement with the UK that includes British pension uprating. [5]

Pensioners living in other overseas countries without a current agreement have their pensions frozen at the rate in effect on the date when they left the UK, or on the date when they applied for a pension, whichever is later.

State Pension age

The state pension age (SPA) is presently between 65 and 66 (see below). The Pensions Act 2011 will raise the SPA to 66 for both men and women by 6 October 2020. Under the Pensions Act 2007, the SPA will be raised to 68 between 2044 and 2046. Under the Pensions Act 2014, the Government brought forward the rise in State Pension age to 67 to 6 April 2028. Details are as follows.

Women born between 1947 and 1953

date of birth fromtodate of reaching SPA
5 April 1950age 60
6 Apr 19505 May 19506 May 2010
6 May 19505 Jun 19506 Jul 2010
6 Jun 19505 Jul 19506 Sep 2010
6 Jul 19505 Aug 19506 Nov 2010
6 Aug 19505 Sep 19506 Jan 2011
6 Sep 19505 Oct 19506 Mar 2011
6 Oct 19505 Nov 19506 May 2011
6 Nov 19505 Dec 19506 Jul 2011
6 Dec 19505 Jan 19516 Sep 2011
6 Jan 19515 Feb 19516 Nov 2011
6 Feb 19515 Mar 19516 Jan 2012
6 Mar 19515 Apr 19516 Mar 2012
6 Apr 19515 May 19516 May 2012
6 May 19515 Jun 19516 Jul 2012
6 Jun 19515 Jul 19516 Sep 2012
6 Jul 19515 Aug 19516 Nov 2012
6 Aug 19515 Sep 19516 Jan 2013
6 Sep 19515 Oct 19516 Mar 2013
6 Oct 19515 Nov 19516 May 2013
6 Nov 19515 Dec 19516 Jul 2013
6 Dec 19515 Jan 19526 Sep 2013
6 Jan 19525 Feb 19526 Nov 2013
6 Feb 19525 Mar 19526 Jan 2014
6 Mar 19525 Apr 19526 Mar 2014
6 Apr 19525 May 19526 May 2014
6 May 19525 Jun 19526 Jul 2014
6 Jun 19525 Jul 19526 Sep 2014
6 Jul 19525 Aug 19526 Nov 2014
6 Aug 19525 Sep 19526 Jan 2015
6 Sep 19525 Oct 19526 Mar 2015
6 Oct 19525 Nov 19526 May 2015
6 Nov 19525 Dec 19526 Jul 2015
6 Dec 19525 Jan 19536 Sep 2015
6 Jan 19535 Feb 19536 Nov 2015
6 Feb 19535 Mar 19536 Jan 2016
6 Mar 19535 Apr 19536 Mar 2016
6 Apr 19535 May 19536 Jul 2016
6 May 19535 Jun 19536 Nov 2016
6 Jun 19535 Jul 19536 Mar 2017
6 Jul 19535 Aug 19536 Jul 2017
6 Aug 19535 Sep 19536 Nov 2017
6 Sep 19535 Oct 19536 Mar 2018
6 Oct 19535 Nov 19536 Jul 2018
6 Nov 19535 Dec 19536 Nov 2018

Men and women born after 5 Dec 1953

date of birth fromtoSPA or date of reaching it
6 Dec 19535 Jan 19546 Mar 2019
6 Jan 19545 Feb 19546 May 2019
6 Feb 19545 Mar 19546 Jul 2019
6 Mar 19545 Apr 19546 Sep 2019
6 Apr 19545 May 19546 Nov 2019
6 May 19545 Jun 19546 Jan 2020
6 Jun 19545 Jul 19546 Mar 2020
6 Jul 19545 Aug 19546 May 2020
6 Aug 19545 Sep 19546 Jul 2020
6 Sep 19545 Oct 19546 Sep 2020
6 Oct 19545 Apr 196066 years
6 Apr 19605 May 196066 years 1 month
6 May 19605 Jun 196066 years 2 months
6 Jun 19605 Jul 196066 years 3 months
6 Jul 19605 Aug 196066 years 4 months
6 Aug 19605 Sep 196066 years 5 months
6 Sep 19605 Oct 196066 years 6 months
6 Oct 19605 Nov 196066 years 7 months
6 Nov 19605 Dec 196066 years 8 months
6 Dec 19605 Jan 196166 years 9 months
6 Jan 19615 Feb 196166 years 10 months
6 Feb 19615 Mar 196166 years 11 months
6 Mar 19615 Apr 197767 years
6 Apr 19775 May 19776 May 2044
6 May 19775 Jun 19776 Jul 2044
6 Jun 19775 Jul 19776 Sep 2044
6 Jul 19775 Aug 19776 Nov 2044
6 Aug 19775 Sep 19776 Jan 2045
6 Sep 19775 Oct 19776 Mar 2045
6 Oct 19775 Nov 19776 May 2045
6 Nov 19775 Dec 19776 Jul 2045
6 Dec 19775 Jan 19786 Sep 2045
6 Jan 19785 Feb 19786 Nov 2045
6 Feb 19785 Mar 19786 Jan 2046
6 Mar 19785 Apr 19786 Mar 2046
6 Apr 197868 years

Deferral

It is possible to defer claiming a State Pension at SPA. [6]

For individuals who reached SPA before 6 April 2016, deferred pensions are increased by 1% for every 5 weeks that the pension is not claimed (approximately 10.4% per year). Alternatively pensioners who have deferred their pension can claim a lump sum and an unenhanced pension. The lump sum is the amount of pension payments foregone plus interest at 2% per year over the Bank of England base rate.

For individuals who reach SPA on or after 6 April 2016, deferred pensions are increased by 1% for every 9 weeks that the pension is not claimed (approximately 5.8% per year).

Calculations

The Basic State Pension is based on the National Insurance record of the individual. Each year that National Insurance was paid is called a qualifying year. For 2012-2013 to be a qualifying year you need to earn at least £5564 if you are an employee, or £5595 if you are self-employed, and have paid (or been credited with) National Insurance contributions based on these earnings. Men born after 5 April 1945 and women born after 5 April 1950 need 30 qualifying years for a full Basic State Pension, with a single qualifying year required to get any State Pension. Men born before 6 April 1945 needed 44 qualifying years for a full Basic State Pension, and women born before 6 April 1950 needed 39 years; to get any State Pension, an individual needed 25 per cent of the qualifying years required for a full pension. Since April 6, 2016, 35 qualifying years are needed to receive the full new state pension. State pension amounts can be reduced if the pensioner was in a contracted-out works pension scheme.

Individuals with less than a full record of qualifying years, may elect to pay voluntary National Insurance contributions, in order to boost their record for pension purposes. [7]

People in certain circumstances, such as caring for a severely disabled person for more than 20 hours a week or claiming unemployment or sickness benefits, can claim National Insurance credits. [8]

The amount of the Basic State Pension that you actually receive is calculated by multiplying the full rate by the number of your qualifying years and dividing by the number of years needed for the full rate.

If you paid NI contributions between April 1961 and April 1975 you would have earned a small Graduated Retirement pension.

If you paid NI contributions between April 1978 and April 2002 you would have earned an additional pension from the State Earnings Related Pension Scheme, although this will be very small if you were "contracted out" of this arrangement. Since April 2002 NI contributions have earned an additional State Second Pension.

Married couples

A wife or husband can claim extra Basic State Pension based on the National Insurance contributions paid by his or her husband or wife (this extra is called a Category B pension).

If a woman has a Category A Basic State Pension of less than 60 per cent of the full Basic State Pension, then when she reaches her State Pension Age, she will have her Basic State Pension topped-up to 60 per cent of her husband's Category A Basic State Pension.

Men, born after 5 April 1945, are able to claim a Category B pension based on their wives' contribution record. Similarly, civil partners who reach State Pension Age on or after 6 April 2010 are able to claim a Category B pension on the same basis.

Top-up pensions

Married women with young children and carers can claim credits of NI contributions. [9]

Pensioners with low incomes can claim Pension Credit. [10]

An 'age addition' of 25p a week is paid to people over 80.

Pensions Act 2007

A new approach was introduced following the findings of the all-party Pension Commission in 2006 and the white paper Security in retirement: towards a new pension system [11] published in May 2006. The key provisions were: [12]

  1. Reduction of the qualifying years for a full Basic State Pension from 44 years for men and 39 years for women to 30 years for both.
  2. The Basic State Pension's yearly increase is determined by a rule known as the “triple lock”, it being the greatest of:
    1. the growth in national average earnings;
    2. the growth in retail prices as measured by the Consumer Price Index;
    3. 2.5 per cent.
  3. The contribution conditions for Basic State Pension were changed so that it is easier for everyone to build up some entitlement.
  4. Replacing Home Responsibility Protection (HRP) with a new system of weekly credits for parents and carers.
  5. Raising the State Pension Age for both women and men from 65 to 68 in three stages between 2024 and 2046.
  6. Introducing National Insurance credits for parents and carers so that they can build up some entitlement to the Additional State Pension.
  7. End of the option to contract out of the Additional State Pension through money-purchase private pensions.

Some modifications to this were made in the Pensions Act 2008.

Future flat-rate state pensions

The Government originally proposed that in April 2017 the Basic and Second State Pensions should both be replaced by a single, flat-rate pension. A Green Paper was issued in April 2011, [13] followed by a White Paper in January 2013. [14] The amount of an individual's flat-rate pension would depend on the number of qualifying years, with 35 qualifying years being needed for the maximum pension and pro-rata amounts for fewer qualifying years, subject to a minimum of about 8 years. Rights already earned to a Second State Pension would not be lost. In the 2013 budget it was announced that introduction of the single tier pension will be brought forward by one year to 6 April 2016. [15]

The new "single tier" State pension will be £144 a week (in 2012-13 terms). Provided they have 35 qualifying years, individuals will actually receive £144 a week, plus a "protected amount" if they have already earned a second State pension greater than £37 a week (which is the difference between the current Basic State Pension and the proposed flat-rate pension), and minus a "rebate-derived amount" if they have paid smaller National Insurance contributions because they were "contracted out" of the Second State Pension Scheme (or its predecessor, the State Earnings Related Pension Scheme). [16]

The new, single-tier State Pension would eventually remove the need for Pension Credit. It is also proposed that various rules regarding marriage, divorce and bereavement would be phased out. This would mean that Category B pensions (see above) would be replaced by Category A pensions for everyone, although any rights to a Category B pension that existed at the implementation date would be preserved. [13]

These changes are now law, they were enacted by the Pensions Act 2014 which received Royal Assent on 14 May 2014 [17]

Chancellor Philip Hammond has hinted the state pension will no longer be ring-fenced from spending cuts after 2020 – raising for the first time the prospect of pensioners' benefits being cut as part of the Government’s austerity measures.[ citation needed ]

Until now, benefits for the elderly have been exempt from reductions and the Chancellor confirmed during the Autumn Statement 2016 that the state pension would continue to rise until at least 2020.[ citation needed ]

See also

Notes

  1. "basic State Pension". UK Government. Archived from the original on 2018-04-13. Retrieved 2018-04-12.
  2. "new State Pension". UK Government. Archived from the original on 2018-04-13. Retrieved 2018-04-12.
  3. "Eligibility" . Retrieved 2018-11-14.
  4. "Your National Insurance record and your State Pension" . Retrieved 2018-11-14.
  5. Social Security Agreement Countries Archived 2010-09-11 at the Wayback Machine , dwp.gov.uk/
  6. "State Pension Deferral - Your Guide" (PDF). Archived (PDF) from the original on 2012-04-03. Retrieved 2012-04-01.
  7. "Application to pay voluntary National Insurance contributions" (PDF). Archived (PDF) from the original on 2011-04-05. Retrieved 2011-03-25.
  8. Understanding the basic State Pension http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/Basicstatepension/DG_10014671 Archived 2011-10-30 at the Wayback Machine
  9. Home Responsibilities Protection
  10. About Pension Credit, Department of Work and Pensions, retrieved 2011-04-25
  11. Security in retirement: towards a new pension system (PDF), archived from the original (PDF) on 2010-12-16, retrieved 2011-04-25
  12. The Pensions Act 2007, Department for Work and Pensions, archived from the original on 2011-05-16, retrieved 2011-04-25
  13. 1 2 A State Pension for the 21st Century Archived 2011-04-08 at the Wayback Machine , DWP Consultation, dwp.gov.uk Archived 2011-04-13 at the Wayback Machine , accessed 15 April 2011
  14. "The single-tier pension: a simple foundation for saving" (PDF). Archived (PDF) from the original on 2013-01-23. Retrieved 2013-01-15.
  15. "Archived copy". Archived from the original on 2013-08-18. Retrieved 2013-05-18.CS1 maint: Archived copy as title (link)
  16. http://www.dwp.gov.uk/docs/single-tier-pension.pdf Archived 2013-01-23 at the Wayback Machine The single-tier pension: a simple foundation for saving
  17. "Archived copy". Archived from the original on 2015-03-28. Retrieved 2015-03-09.CS1 maint: Archived copy as title (link)

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