What will become of the state pension? It’s the rapidly expanding elephant in the room overshadowed only by its larger cousin the NHS.
Both public services are relied upon by the UK’s population. They are grand British institutions born in the wake of the Second World War. At that time, the country was bankrupt, railways, roads, docks and coal mines were barely operational and food rationing was to carry on for another nine years.
Britain’s population was 49 million, men were expected to live until 66 and women until 71. Today the population is just over 67 million, male life expectancy is 79 and women’s just shy of 83.
As the Government again kicked the can of worms that is the future of the state pension into someone else’s back yard, i takes a look at what you need to know now.
What is the state pension?
The state pension provides a guaranteed income for anyone who has paid sufficient enough insurance during their working lifetime.
Typically, this means paying national insurance for a minimum of 10 years and to get the full amount, you’ll need to have made NI contributions for a full 35 years. Click here to see how many years you have on your NI record.
Unlike personal or company pensions, you do not save money into a fund which is then invested.
The state pension is paid directly from the public purse, funded by everyone who pays national insurance today.
If you qualify, you can start drawing this income when you reach state pension age – currently 66.
Plans are in place to raise the state pension age to 67 between 2026 and 2028, and again to 68 between 2044 and 2046.
How much s the state pension?
Anyone who reached state pension age before 6 April 2016 and had contributed enough national insurance is entitled to the old basic rate state pension, currently £156.20 per week.
There are a number of top-ups available for those on the old state pension, which vary depending on your circumstances.
The most common is the additional state pension, also called the second state pension. You may get less state pension if you were “contracted out” of this part of the state pension. It’s complex so check here if it applies to you.
Those who reached state pension after 6 April 2016 get the state pension, a flat rate calculated based on how many years you paid national insurance.
From 10 April, the government uprated state pension payments in line with inflation at 10.1 per cent. The full flat rate State pension is now £10,600 a year with weekly payments of £203.85.
What is the triple lock?
When the Conservative and Liberal Democrats won the 2010 general election, they introduced a promise to ensure the state pension always rose in line with earnings.
This promise is known as the triple lock because it “locks” the Government into increasing the state pension each year by the highest of:
- How much average earnings have gone up in the past year
- How much the cost of living has risen, measured by consumer price inflation
- 2.5 per cent, which is 0.5 per cent above the Bank of England’s inflation target
Even though the triple lock is “guaranteed” the government suspended it during the pandemic.
This saved public money which went towards emergency spending instead. The triple lock only returned last month.
How much state pension will I get?
There’s no one answer to this as it will depend on how long you paid national insurance for, whether you worked abroad during your career or stopped working for a while – to have children for example.
If you didn’t work for any other reason and weren’t paying national insurance for a time, this would reduce the amount of state pension you’re entitled to.
The easiest way to work out what you will get is to get a state pension forecast.
There are some circumstances where you can claim national insurance credits, which count as contributions when you can’t work because of illness or you care for someone full-time.
If you stop working to look after children, you should register for child benefit even if you aren’t eligible to receive it because your partner earns more than £60,000.
By registering you automatically get national insurance credits so you don’t lose out on your state pension entitlement.
It’s worth keeping an eye on this if you didn’t register for child benefit and have lost out as the government said in recent weeks it plans to allow eligible parents to claim national insurance credits retrospectively.
Details should be released this year.
Should I top up my state pension?
If you have less than a decade of national insurance contributions, you don’t qualify to get state pension.
You can choose to make voluntary contributions to top up your record and take you over the threshold. In some cases you can top up so that you receive the full state pension when you retire.
It’s important to remember that if you contribute to your state pension, you cannot claim it until you reach state pension age – currently 66.
If you were to contribute to your personal or company pension, you can access your money at the age of 55.
Both options involve some risk, which is the Government can no longer afford to honour the triple lock or raises the state pension age further and you never reach the age you can claim it from.
With personal and company pensions, values can fluctuate as the underlying investments will rise and fall in line with the markets fall.
How to claim your state pension
You don’t start receiving the state pension as soon as you reach retirement.
You must register to claim it using an invitation code the government will send you within three months of you reaching state pension age.
You can also call the Pension Service on 0800 731 7898 who will send you a claim form for you to fill in and post.
Can I delay claiming my state pension?
If you want to keep working past the state pension age of 66 you don’t have to claim immediately.
If you don’t register to claim, the Government will automatically “defer” your state pension.
You shouldn’t lose out on how much you receive if you start claiming later as the Government adds 1 per cent of your entitlement for every nine weeks you don’t claim after reaching retirement age.
If you turned 66 on 6 April this year and decided not to claim for one year, then next year you would receive £215.67 a week, 5.8 per cent more than the full state pension of £203.85.
This figure would be higher if the government uprates the state pension again next year.
It’s worth remembering that if you retired after 6 April 2016, you will receive only as much state pension as you claim until you die. If you delay claiming and die early, you’ll receive less.
Do I inherit my partner’s state pension?
It depends on the circumstances but you’ll need to have married or entered a civil partnership with them before 6 April 2016.
You would receive their state pension if they died before 6 April 2016 even if they had not reached state pension age by that date.
Was I underpaid my state pension?
An error made by the Department of Work and Pensions years ago meant some people claiming the basic state pension didn’t get uplifts they were entitled to when their spouses retired or died.
It mainly affects married women, but it’s worth checking if you’re affected as underpayments go back years and can be worth tens of thousands of pounds.
Call the Pension Service on 0800 731 7898 if you think you may be affected.
What will happen to the state pension?
In April the Department of Work and Pensions confirmed that £113bn was paid out in State pension in 2022/23.
This tax year it is forecast to rise to £124bn, partly because government honoured the triple lock guarantee and partly as another 200,000 people reach retirement age.
The ballooning cost and the burden it places on the taxpayer has put the State pension in the spotlight.
In March, the government delayed a decision on when to raise the state pension age to 68 until after the general election.
Earlier this month work and pensions secretary Mel Stride warned: “The demographic changes and the cost of pensions is really weighing in the wrong direction.
“There is a point in time at which the nettle will have to be grasped, but it doesn’t need to be grasped until somebody other than me is in the [job].”
