THE state pension is the income paid to you by the Government after you reach a certain age.
It is increased each year, currently according to what is known as the triple lock. This new system was introduced in 2016.
But how much do you get for your state pension? Here we take a closer look.
How much is the state pension?
For the 2021-22 tax year, the new full state pension is set at £179.60 a week.
This is what the state pays those who reach state pension age after April 6, 2016.
The basic state pension is set at £137.60 per week.
How much will I actually get?
The amount you receive depends on your National Insurance (NI) record throughout your adult life.
If you have made at least 35 years of qualifying NI contributions, you may qualify for the maximum amount.
The same is true if you have received equivalent credits on your NI record for raising children or providing care.
If you don’t have 35 years, you may be able to top up your record by paying in voluntary NI contributions.
To get the full basic state pension you will need 30 years of NI contributions or credits.
To get any state pension at all, you will need at least 10 years on your NI record.
What age do I get it?
In response to rising life expectancy, the age at which you become eligible to receive the state pension has been going up.
The age is rising above 66 for both men and women and set to reach 68 by 2039.
Top tips to boost your pension pot
DON’T know where to start? Here are some tips from financial provider Aviva on how to get going.
- Understand where you start: Before you consider your plans for tomorrow, you'll need to understand where you stand today. Look into your current pension savings and research when you’ll be eligible for the state pension, and how much support you’ll receive.
- Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
- Take advantage of online planning tools: Financial providers Aviva and Royal London have tools that give you an idea of what your retirement income will be based on how much you're saving.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.
Reviews are planned every few years. To find out your state pension age, head here.
What is the triple lock?
The state pension goes up each year according to a three-way policy called the triple lock.
This means pensioners get an increase equivalent to the highest of either average earnings, price inflation, or 2.5%.
The aim is to ensure pension incomes keep pace with everybody else’s.
But things have got complicated due to the strong rebound in earnings as the economy recovers from the pandemic – and higher inflation.
As a result, pensioners could be in line to receive a bumper increase in 2022, just at the time when many employees are simply trying to catch up on lost earnings.
If this happens, there is likely to be pressure on Chancellor Rishi Sunak to smooth the increase at the very least – perhaps by using an average of previous year’s data instead.
Crucially, there is no "fund" from which state pensions are paid. Costs are met from NI contributions from today’s workers.
Could the triple lock get scrapped?
While there has been speculation that the safeguard could be ditched or cut as the UK battles to repay the costs of Covid-19, the Government has so far been adamant it will not break its manifesto commitment.
But that's not to say the situation won't change before you some to retire.
How to claim the state pension
You won’t automatically get the state pension – you need to claim it once you’re eligible.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it so it's compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% (1% in tax relief) and employers contributing 3%.
- Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £179.60 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify.
- Basic state pension – If you reached the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £137.65 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
You should receive a letter no later than two months before you reach state pension age, explaining what to do. Find out more here.
Check if you can claim pension credit
If you’re single and your weekly income is less than £177.10 per week (or in a couple and your joint income is under £270.30 per week), you may be eligible to claim pension credit.
This is a means-tested benefit to help those on lower incomes by giving them extra money throughout retirement. Find out more here.
State pension unlikely to be enough for a comfortable retirement
It’s important not to make the assumption that you’ll be able to live comfortably on the state pension alone when you stop working.
For the current tax year (2021-22), the maximum state pension amounts to an annual income of £9,339.
As a guide, you might want to aspire to a retirement income of at least half of your working income.
It comes as new research shows that a third of young Brits aren't saving up for their retirement.
While you may be able to boost your state pension by deferring it (see below), most of us will need to think about putting money away ourselves via a personal or workplace pension.
Deferring the state pension
If you opt to defer your state pension, your entitlement increases by the equivalent of 1% for every five weeks you do so.
Deferring a year increases the payment from £179.60 a week to £190.02 a week.
This could make sense if you are still working at state pension age, or have another retirement income.
But research carefully before making any decision.
Saving into a pension yourself
The best way to save for retirement is by putting money into a personal or workplace pension – and having this as well as the state pension.
Saving into a pension can be a very tax-efficient way to save, as contributions benefit from tax relief.
Under current rules – known as the ‘annual allowance’ – you can contribute £40,000 every year, and receive this tax break on the whole amount. This allowance applies across all the schemes you belong to.
With a workplace pension, you may get the added benefit of employer contributions as well – further boosting your retirement fund.
Watch out for the lifetime allowance
You need to be aware that if the amount you have tucked away into a pension pot goes over a certain amount, known as the ‘lifetime’ allowance,’ you will face charges.
This is currently set at £1,073.100.
Request a state pension forecast
As the state system can be tricky to navigate, a key part of any pension planning involves requesting a state pension forecast.
This will help you get your head around how much you could be eligible to receive, and from what age.
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