5 things we need to know about the State Pension

The bedrock of our retirement income explained.

5 min read


Did you know? The State Pension has been a thing since 1908, when it was originally introduced by David Lloyd George’s Government. There have been a few changes since, and this article aims to give you the main things you need to know about the Basic State Pension.

So what is it?

The State Pension is a regular payment paid by the Government. You can claim your State Pension when you reach the State Pension age, which will be 68 for anyone born after 1970. Historically, the State Pension had two parts or tiers;

  1. Basic Pension
  2. Additional Pension

In April 2016 this was scrapped by the Government and they introduced new rules under the imaginatively named “new State Pension”. The idea behind this was to make pensions simple! About time right?!

How is the State Pension calculated and when can I claim it?

The New State Pension is different to the old State Pension because that second, earnings related part – The “additional” pension has been abolished. This means the State Pension is based on your National Insurance (NI) contributions only now.

State retirement age is set to rise to 68 for both men and women, but may increase further to 70 for those in their 20's or 30's.

How much is the State Pension worth to me?

After the rules changes, the full State Pension is now worth £175.20 per week which is equal to £9,110 per year (2020/21). This does increase each year to account for inflation.

To qualify for the full State Pension amount, you will need to have paid full National Insurance contributions for 35 years. Of course, if you have already paid some NI before April 2016 - these will count.

Nobody should lose out as a result of the changes to the rules with everyone’s “old” State Pension being converted to a starting amount under the new rules since 6 April 2016.

Is my State Pension going to be enough?

If you have the full 35 years of NI contributions, you get the full entitlement to £175.20 per week. Remember the 35 years don’t have to be consecutive years. If you have less than 10 years of NI contributions, be aware, you might not be entitled to any State Pension when you reach State retirement age. If you are somewhere in between, you'll receive a reduced pension.

So, the unless you have already accrued more State Pension through additional State Pension contributions under the old system, it looks like you'll need to ensure 35 years of NI contributions to get the £175.20 per week. Check this out for a deeper dive into how the calculation is carried out.

If you manage to qualify for the full amount, do you think it would be enough for you?

Of course, nobody can predict with absolute certainty what their circumstances will be, however, it sometimes is easier to take a realistic outlook at what you think you would want as a minimum amount of income once you stop working rather than a maximum. For many, the State Pension really won’t be enough to live on.

What should I do now?

The answer is to start saving in a workplace pension or a private pension as early as you can. Check out our article on why saving earlier does the damage when it comes to building up your future money. Thanks to Auto-Enrolment too workplace pensions are now compulsory providing you meet the eligibility for one. If you are self-employed, a personal pension may be the best option.

If you wish to top up your NI contributions you can do so, however it might be worth ensuring you have a full picture of all of your pensions before you decide which pot to contribute too.

The Government can help you get an updated statement and check your National Insurance record on the government state pension checker.

Author: S Champaneria

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