An Introduction To Pensions In The UK

The state pension is a regular income which is paid by the government for those who have retired and are no longer able to work. Every April the amount that retired people get increases in line with rises in the cost of living (CPI), average wage increases or by 2.5% (whichever rate is the highest). Annual state pension payments are lower than the Personal Allowance of £11,850 set by HMRC so pensioners would only be eligible to pay tax if they have another source of income. In this article we examine:

  • How the state pension is calculated
  • How much the UK state pension is
  • When do you get your state pension?
  • Retiring early and state pensions

How is the state pension calculated?

The amount that retirees receive depends on how many National Insurance contributions they’ve made over their working life. Workers who have gaps in their employment record (to bring up children, for example) receive NI credits which count towards their final pensions.

Workers with gaps in their employment  record are eligible to receive NI credits

There have been recent changes in the UK’s state pension system which will affect those born on/after 6th April 1951 (for men) or 1953 (for women). For the new state pensions, people have to have at least 10 qualifying years. Also, the number of qualifying years for a full pension has risen from 30 to 35 years.

How much is the state pension in the UK?

Under the old system, the basic UK state pension is £125.95 for a single person and double that for a couple who are married or in a civil partnership (£251.90). For the 2019-20 tax year, this is due to rise to £129.20 a week per person.

A couple are meeting with a financial adviser to discuss their pensions

Under the new state pension, the maximum state pension a single person can receive is £164.35 per week, which will increase to £168.60 in April 2019.

When will I get my state pension?

Apart from altering the way pensions are calculated, there have also been changes in the State Pension Age (SPA). Although the SPA for men has always been 65, the retirement age for women has steadily increased to 65 since 2010. Further increases are gradually being implemented for both men and women. These are:

  • Oct 2020 – SPA at 66 years old.
  • 2026-28 – SPA at 67.
  • 2037-39 – SPA at 68.

The age you’ll be eligible for a state pension depends on when you were born. There is an online calculator [www.gov.uk/state-pension-age]to find out exactly when you can apply.

Questions on UK state pensions

How many years do I have to work in the UK to get a pension?

To get any state pension, there must at least 10 qualifying years on your National Insurance records for the minimum state pension. However, to be able to claim the full new state pension, you need 35 qualifying years. For the duration of work between 10 and 35 qualifying years, you would be entitled to a proportion of the new state pension.

Can I get my pension if I leave the UK?

You are entitled to receive the UK state pension if you live in another country. However, it will only be possible for you to have pension increases each year if you live in the UK for 6 months or more every year, or within the European Economic Area (EEA), Switzerland, or a country that has a social security agreement with the UK that allows for increases.

How much is basic pension in the UK?

The basic state pension in the UK is £125.95 weekly. If you have less than 35 qualifying years, the basic state pension will be lower than £125.95 weekly but it may be possible to increase this by paying National Insurance contributions voluntarily.

Can I retire at 60 and claim a state pension?

You are of course allowed to retire at any age, but this doesn’t necessarily mean you’ll be entitled to a state pension. In situations of extreme ill-health (and especially a terminal diagnosis), you might be able to claim your state pension as early as 55 or younger. However, you must provide the necessary medical documentation.

How can you claim a state pension?

Claims for a state pension can be made by phone, or you can download a form from the gov.uk site and take it to your local pension centre. Recipients of the new state pension also have the option to apply online through their Government Gateway account.

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