Understanding State Pensions

The State Pension is a fixed monthly income paid by the Government of UK to people who have attained the State Pension Age.

When clubbed with personal or employer pensions, it can be a valuable part of your retirement income.

It is funded by the National Insurance (NI) Contributions.

Employed people have to make mandatory contributions towards National Insurance throughout their working life.

On the contrary, if you are unemployed, disabled, or are caring for a child, then you will be credited by the Government as having contributed towards NI so that you receive basic State Pension.

Along with Basic State Pension, you may also be eligible for Additional State Pension or Graduated Retirement Benefit, depending on your earnings and subsequently, your contributions towards NI.

State Pension Age

The SPA or State Pension Age is the earliest age at which you can claim your State Pension. It depends on when you were born.

Significant changes are being made to State Pension Ages since April 2010.

The current SPA is 65 for men born before 6 October 1953 and has been between 62 and 65 for women. As of today, the SPA for Women is 62 ½. It will reach 65 for women too by 2018, and there are plans to increase it further for both men and women.

After 2018, the state pension age will be reviewed every five years and will be linked to the average life expectancy at that time.

The Two Parts of State Pensions 

There are two parts in the State Pension which are ‘The Basic State Pension’ and ‘The Additional State Pension’.

Basic State Pension: Almost every citizen of UK qualifies for a basic state pension. The amount you may receive depends on the number of qualifying years of National Insurance contributions. To be eligible, you must have made or been credited with 30 years of NI contributions. If you have lesser number of qualifying years, then the amount you receive will reduce. The basic state pension payout is £115.95 a week in 2015/16. If your spouse or partner has also built up State Pension, then you may receive double this amount which amounts to £231.90 a week. On the other hand, if your partner has not built up State Pension, they might still be able to claim it on the basis of your records (In some cases). People whose income is below a certain level can claim Pension credit which will boost their weekly state pension.

Additional State Pension: Additional State Pension or State Earnings Related Pension Scheme (SERPS) is an additional pension amount that you may qualify for depending on your contributions. In the year 2014/15, you could claim a maximum amount of £163 a week on top of your basic State Pension payout.

The New Flat Rate Pension 

From April 5, 2016, a new flat-rate pension will replace both Basic State Pension and Additional State Pension. At least ten years of contributions to NI will be mandatory for people to be eligible for any type of pension. People who have 35 years of NI contributions will receive a flat amount of £150 a week. The amount may increase if you have contributed towards an additional state pension.

The new reforms will benefit self-employed citizens who currently do not qualify for a second state pension.

Claiming your State Pension

Once you reach your SPA, you will have to claim your state pension. Ideally, you will be contacted by the Pension Service four months before you reach the SPA. If you have not been contacted at least three months before your birthday, then you can do one of the following:

  1. You can call the Pension Service on 0800 731 7898
  2. You can visit www.gov.uk/state-pension/howto-claim to download a claim form
  3. You can make a claim online at www.gov.uk/claim-state-pension-online (The government Gateway User ID and Activation Code will arrive in Post in about Seven Days from the date of registration)

You can choose to claim your state pension when you reach the SPA, or you can defer it or delay it which means you will be eligible for a higher amount when you eventually claim it 

If you still have questions in mind, you may look at our Complete Pensions FAQ


When Can I Retire?

This is probably a question that has been on the minds of many people for several years! Of course, we can not tell you when you should retire (which depends on your personal circumstances). However, we can tell you when you can start receiving your state and personal pensions.

One thing to note before we continue: a lot of the details that are included in this guide are based on present and planned changes to the age at which you can receive your pension. Therefore, you should keep track of the developments to ensure that you do not be required to work longer than you were expecting to!

State Pension

If you are a man, you can begin to receive your State Pension from the age of 65.

If you are a woman, on the other hand, the State Pension age has started to increase gradually from 60 to 65.

You can easily calculate your State Pension age here.

By October 2020, the State Pension age for both women and men will gradually be increased to 66 depending on the exact date of your birth.

Between 2026 and 2028, the State Pension Age will rise from 66 to 67.

RELATED: Understanding State Pensions

The Government has also suggested increasing the age at which you can claim your State Pension to 68 between 2037 and 2039. The earlier timetable for this was 2046.

You do not have to claim your State Pension as soon as you become eligible to take it. If you decide to delay when you take your State Pension, you could be able to receive an increased weekly pension. The pension would grow by 1% for every nine weeks that you defer receiving it. So, if you deferred for an entire year, you would increase your state pension by almost 5.8%.

Personal Pension

There is currently no maximum age by which you need to take an income from your pension pot (previously, it was 75). However, if you continue to pay into your pension after the age of 75, you will no longer receive any tax relief on your contributions. You can take your personal pension regardless of whether you are still working and/or are receiving the State Pension.

Even though you can currently take your pension at any point from the age of 55, you should remember that your pension provider may manage your pension by considering when they expect you to retire. Usually, sometimes up to a decade before your retirement, your pension provider will transfer your pot from riskier investments to those that are safer in order to protect the gains that you will have made over your lifetime. This is sometimes dubbed “lifestyling” which applies to all stakeholder pensions and some personal pensions.

The Government has announced that it plans to raise the minimum age at which you can have access to personal pensions to 57 in 2028 so that it is always ten years earlier than the period when the state pension can be paid.

If you are not planning to retire until later, it may be a good idea to inform your pension provider so that you can continue to benefit from higher potential returns for a longer period (although of course, this comes with the higher risk of your pension fund dropping value, if an investment performs poorly).

When do I have to take an annuity?

There is no necessity to purchase an annuity at any time. You can opt not to purchase an annuity and can keep your pension invested, withdrawing a part of it every year as an income instead, or just living off the growth in investment.

If you still have questions in mind, you may look at our Complete Pensions FAQ.