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How state pensions build up


How state pensions build up

The state pensions system is paid for through the National Insurance fund.

pension pot - coins in a jarThis is supported by payments from employers and employees, and can potentially be topped up through general taxation. Your record for entitlement to state pension is based on your record of National Insurance (NI) contributions and/or credits.

For employed individuals, NI contributions are paid at the following rates (based on 2017/18 tax year figures):

  • Employee – 12% on earnings between the Primary Threshold (£157pw) and Upper Earnings Limit (£866pw). 2% on earnings above the Upper Earnings Limit.
  • Employer – 13.8% on earnings above the Secondary Threshold (£157pw).

If an individual earns above the Lower Earnings Limit of £113pw, but not at the Primary Threshold level (£157pw) required to pay National Insurance, they still build up benefits as if they had paid.

Different arrangements apply to the self-employed, who can make different forms of National Insurance. Individuals who are neither paid employees nor self-employed may be entitled to get National Insurance credits if they are:

  • unemployed and claiming Jobseekers Allowance (credits automatically given)
  • ill and/or disabled (recipients of Universal Credit or ESA get credits automatically)
  • on maternity, paternity or adoption leave (recipients of Statutory Maternity, Paternity or Adoption Pay need to apply for credits)
  • carers (recipients of Child Benefit and Carer’s Allowance get credits automatically)

The amount of state pension you get depends on your record of NI contributions/credits built up over your working lifetime (between age 16 and state pension age).

If you fall short, you can top up your record by paying Class 3 NI contributions. Further details can be seen in Prospect’s downloadable briefing.

Latest pensions documents

Letter to FST re low earners in net pay scheme   info
Letter to Financial Secretary to the Treasury about the issue of pension tax relief for low earners in net pay schemes.

Letter from John Glen re pension tax relief for low earners in net pay schemes   info
Response from Economic Secretary to the Treasury to letter about the issue of pension tax relief for low earners in net pay schemes.

Letter to pension minister re potential RPI CPI statutory override   info
Letter to pension minister expressing opposition to the possibility of re-opening the issue of allowing employers to unilaterally change the index for increasing pensions from RPI to CPI.

Letter to Cabinet Office re ACPs paid by Carillion   info
Letter to Cabinet Office seeking meeting to discuss redress for ex civil servants made redundant by companies in the Carillion Group.

AEAT Pension Scheme - Frank Field Letter - February 2018   info
Letter from Frank Field MP to Pension Minister calling for AEAT Pension Scheme advice to be included in remit of PO or PHSO.