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State pensions

State pensions

Your state pension is, or will be, an important part of your income in older age.

The New State Pension – 11 things you need to know

A New State Pension was introduced for people who reach state pension age from 6 April 2016 (that is, men born on or after 6 April 1951 and women born on or after 6 April 1953).

The new system is known as the single-tier pension – replacing the current system which incorporates Basic State Pension, SERPS and S2P.

These pages explain how the state pension systems work:

  • how state pensions build up, including details of how to top up your state pension by making voluntary payments
  • when they are paid
  • how much you'll receive
  • where to find more information about your entitlement.

This information is also shown in our downloadable briefing on state pensions.

State pension reform will also result in significant detrimental changes to arrangements for Guaranteed Minimum Pensions paid from private pensions. 

Getting information on your entitlement

Some calculations about your entitlement are easier than others.

The basis for working out Basic State Pension and single-tier pension is relatively straightforward, but the system for calculating Additional State Pensions and deductions made for contracted out service is exceptionally convoluted.

In the government’s own words “these complex rules have made calculating or forecasting a person’s Additional State Pension entitlement difficult.”

Whichever of these systems applies to you, the following official online resources might be useful:

How state pensions build up

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

This 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 2018/19 tax year figures):

  • Employee – 12% on earnings between the Primary Threshold (£162 per week) and Upper Earnings Limit (£892pw). 2% on earnings above the Upper Earnings Limit.
  • Employer – 13.8% on earnings above the Secondary Threshold (£162pw).

If an individual earns above the Lower Earnings Limit of £116pw, but not at the Primary Threshold level (£162pw) 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.

When state pensions are paid

State pensions are paid from your state pension age (SPA).

Historically SPA was 65 for men and 60 for women. Legislation passed in the 1990s has required women’s age to be equalised with men’s and as a result women’s SPA has been increasing since 2010 and will equalise with men’s SPA in 2018. Further changes are planned.

You can see your state pension age by downloading Prospect’s state pension age calculator.

At July 2015, the calendar for state pension age changes is:

Date of birth

Date of change

SPA - men

SPA - women

Up to 05/04/1950

Up to 05/04/2010

65

60

06/04/1950-05/12/1953

06/04/2010 – 05/12/2018

65

Rising from 60 to 65

06/12/1953 - 05/10/1954

06/12/2018 – 05/10/2020

Rising from 65 to 66

06/10/1954 - 05/04/1960

06/10/2020 – 05/04/2026

66

06/04/1960 - 05/03/1961

06/04/2026 – 05/03/2028

Rising from 66 to 66 and 11 months

06/03/1961 - 05/04/1977

06/03/2028 – 05/04/2044

67

06/04/1977 - 05/04/1978

06/04/2044 – 05/04/2046

Rising from 67 to 68

After 05/04/1978

06/04/2046 onwards

68


Aside from these changes, which have already been written into law, the government plans to review SPA every five years starting in 2017.

The last (coalition) government said adjustments would be made to ensure that, on average, individuals do not spend more than one-third of their adult life in retirement.

Any future changes would need to be introduced through a new Act passed by Parliament. Based on previous government announcements, we hope that that at least ten year’s notice would be given of any future changes.

An official review in March 2017 made recommendations for future rises, but these have not been passed as law yet. See State pension age review – Initial summary of review papers document for more information.