Don't Take the State Pension for Granted

There have been several changes to the state pension system in recent years. This article will explain the current rules and hopefully alert to pitfalls which may result in lower amounts being received when reaching state pension age.

Recent changes

• The current system was introduced on 6^th April 2016 and means that a person retiring after this date with at least 35 qualifying years receives a pension of £168.60 per week.
• This compares favourably to those already receiving state pension in 2016 who receive a basic pension of £129.20 per week. However, those who had been employed for some or all their working life will receive additional amounts.
• Anyone with between 10 and 35 qualifying years will receive a partial state pension.
• Anyone with less than 10 qualifying years is not entitled to any state pension.
• Historically a woman was eligible to retire at age 60 and a man 65. A woman’s state pension age has been increasing in recent years, and since November 2018 both men and women are eligible to claim at the same age.
• The state pension age will now gradually increase for both men and women until it is 67 by 2028.

What is a qualifying year?

There are a number of different ways of obtaining a qualifying year for state pension purposes:

• By being an employee earning at least £118 per week from a single employment.
• By being self employed and paying Class 2 National Insurance Contributions (NIC’s) at a fixed rate of £156 per year. Anyone with earnings of less than £6,365 can claim exemption from this amount, but in many cases it is better to pay as it is a cheap way of maintaining your pension entitlement.
• By obtaining a National Insurance credit by receiving certain state benefits. By paying voluntary NIC’s. This is usually a last resort as the cost is over £780 per year.

A self employed person normally pays Class 4 NIC’s as well as Class 2, but these do not help qualify for state pension or any other benefits.

It is fair to say that few people can live comfortably in retirement solely on the state pension these days. However, it is still important to take care that you are paying sufficient NIC’s to qualify for a full state pension. If in doubt you should contact the Department of Work and Pensions to ask for a pension forecast.