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How much state pension you get

 

How much state pension you get

The calculation for working out how much state pension you will receive

savings and retirement pots

Single Tier Pension for anyone reaching State Pension age from 6 April 2016

Transitional arrangements for people reaching state pension age from 6 April 2016 who have worked prior to this date

Basic State Pension and Additional State Pension for anyone reaching state pension age before 6 April 2016

Deferring taking your state pension

 

For those retiring under the new state pensions System, your New State Pension will be calculated as the sum of:

  1. Your Starting Amount, based on your National Insurance history prior to 6 April 2016, plus

  2. (if your Starting Amount was lower than the original full New State Pension of £155.65 per week) 1/35th of the full New State Pension for each year that you have a qualifying National Insurance record from April 2016

For example, John has a been a member of a contracted out occupational scheme for 30 years.  His starting amount is £119.30.  For each year he pays National Insurance or receives credits from April 2016 onwards he will add (159.55/35 =) £4.56 to this starting amount.  If he makes nine years' of National Insurance in this way, he will reach the maximum new State Pension.  (Note that these amounts will be reviewed each year by Government - the system for review at present is the Triple Lock which will increase pension amounts by the best of 2.5%, earnings inflation or price inflation.)

 

Single Tier Pension for anyone reaching State Pension age from 6 April 2016

Single Tier Pension is based on an individual’s record of NI contributions and credits. The maximum level of Single Tier Pension is £159.55 per week in 2017/18.

The maximum level of Single Tier Pension is payable to individuals with at least 35 years of NI contributions and credits. At least 10 years of NI contributions/credits will be needed to qualify for any pension. Anyone with between 10 and 35 years of NI would receive a proportionate amount of Single Tier Pension.

For every year you make a NI payment or receive a credit you will build up an entitlement equal to the amount of the maximum Single Tier Pension divided by 35 (ie at the provisional level of £159.55, £4.56 per week is added for every year of National Insurance added).

 

Transitional arrangements for people reaching state pension age from 6 April 2016 who have worked prior to this date

NI contributions/credits built up before April 2016 will count in the new system. Indeed, for anyone with a history of paying in both before and after April 2016, transitional arrangements will apply. These are necessarily complex and built to reflect the inequities in the current system and to lessen the potential for 'winners and losers' to emerge. The pension entitlement built up from NI prior to April 2016 is called the Starting Amount.

This Starting Amount is calculated as if you reached SPA on 6 April 2016 and is the better of:

  • the amount you have built up in the system that was in place prior to April 2016 (ie through Basic State Pension and any Additional State Pension)
  • the amount you would have built up had the new Single Tier system been in place for your whole working lifetime, with a deduction made to reflect any periods of contracted out service.

If your Starting Amount exceeds the original maximum level of Single Tier Pension (i.e. £155.65), then you retain the entitlement to this higher amount of weekly state pension, known as a Protected Payment. But you would not build up any further entitlement above this amount as a result of paying future National Insurance contributions from April 2016 onwards.

If your Starting Amount is lower than the maximum Single Tier Pension, you can continue to add to this through future National Insurance contributions from April 2016.

Examples of Transitional Arrangements

Dani (born 1955) has been contracted in for her whole working life from 1976. She reaches state pension age in 2021. From her 40 years of NI contributions up to 2016, she has built up entitlement to a full Basic State Pension and £95pw[1] in Additional State Pensions. Her Starting Amount is therefore the better of:

  • £210.95 (in full Basic State Pension + Additional State Pension)
  • £155.65 (in full Single Tier pension from 40 years NI)

which gives £210.95. As this exceeds the maximum Single Tier Pension, it is retained for Dani as a Protected Payment of £59.70 above the full Single Tier. Dani will pay National Insurance between 2016 and 2021 but will not see her pension entitlement increase correspondingly.

George (born 1965) has been contracted out for his whole working life from 1986. He reaches State Pension age in 2032. From his 30 years of National Insurance paid up to 2016, he has built up entitlement to a full Basic State Pension but no Additional State Pension. His Starting Amount is therefore the better of:

  • £119.30 (in full Basic State Pension)
  • £69.64 (from 30/35ths of the full Single Tier Pension less a £60[2] deduction reflecting contracted out service)

which gives £119.30. This is less than the full Single Tier Amount, meaning that George can build up additional entitlement through National Insurance contributions. As each year will add £4.56 to his pension, he needs to add another 9 years of NI contributions between 2016 and 2032 to qualify for a full Single Tier Pension.

The full Single Tier Pension is intended to be increased in line with the Triple Lock formula, subject to continued political commitment. Anyone with a Protected Payment will see the protected amount of their pension (ie the amount by which their pension exceeds the maximum Single Tier Pension) increase only in line with CPI price inflation.

[1] NB Amounts for Additional State Pension and corresponding deductions in these examples are purely illustrative
[2] Again this number is illustrative reflecting the complexities involved in calculating Additional State Pension and contracted out amounts 

 

Basic State Pension and Additional State Pension for anyone reaching state pension age before 6 April 2016

Basic State Pension is based on an individual’s record of NI contributions and credits. The full value of the Basic State Pension is £122.30 per week (2017/18 value). To get the full amount, you must have at least 30 years of NI contributions/credits. Anyone with less than 30 years will receive a proportionate amount of the full amount (eg someone with 20 years would receive two-thirds of the full amount).

Basic State Pension is currently increased each year in payment in line with the Triple Lock formula – the best of CPI price inflation, average earnings increases and 2.5%.

Additional State Pension (known as State Earnings Related Pension (SERPS) between 1978-2002 and State Second Pension (S2P) from 2002-2016). These supplementary benefits are also based on an individual’s NI record. The amount you get has tended to be linked to the level of your earnings. But the formulae used to calculate them is historically complex and has been changed on numerous occasions, so they are not easy to for people to work out.  

Additional State Pensions are increased each year in line with CPI price inflation.

Individuals who have a history of being contracted out and paying lower levels of NI contributions will have diminished levels of Additional State Pension payable commensurate with the length of time they were contracted out for.

 

Deferring taking your state pension

Whilst it is not possible to claim your state pension before SPA, it is possible to defer taking state pension until a later date. In such instances the state pension you would normally have received is enhanced to reflect later payment. The enhancements applied are:

  • If you reach SPA before 6 April 2016, pension is enhanced by 1% for every 5 weeks of deferral (or you can claim the foregone pension as a one-off lump sum paid with interest of 2% above Bank of England base rate).
  • If you reach SPA after 5 April 2016, pension is enhanced by 1% for every 9 weeks of deferral.

More information on deferring state pensions can be seen in our downloadable briefing.

 

Latest pensions documents


Pension tax relief teleconference - December 2017   info
Recording of teleconference on pension tax relief held in December 2017.

Letter to Pensions Minister re State Pension Age review   info
Letter to Guy Opperman MP about proposed change to principle underpinning future reviews of State Pension Age that would result in higher State Pension Age for millions of people.

Prospect Response Civil Service DC Pensions Provider Consultation   info
Response to Cabinet Office's consultation on the appoint Legal & General as the sole provider for Civil Service's defined contribution pension schemes.

Prospect submission to Pension Freedoms inquiry   info
Submission to Work and Pensions Select Committee Inquiry into pension freedoms.

Prospect submission on defined contribution arrangements to NDA Pension Forum   info
Prospect submission on defined contribution arrangements to NDA Pension Forum