Your state pension explained

The state pension was first introduced in 1909 and around 500,000 people aged 70 and over were paid 5 shillings (25p) a week. Taking inflation into account, that’s around £28 per week in today’s money.

The state pension has been modified many times since. The most recent shake-up was in April 2016, when a flat-rate state pension was introduced for anyone reaching state pension age on or after 6 April that year. However, anyone older than this continued to receive their state pension under the previous system. 

Previously women received the state pension at age 60 and men at age 65. This has gradually been increased because people in the UK are living longer which increases the cost of paying the state pension. 

The age for men and women has been 66 since April 2020, it will rise to 67 by 2029, and is due to rise further after this.

State pension: Old and new rules

The old state pension was made up of a basic pension plus an additional pension linked to earnings. The new state pension pays a single flat rate payment plus any ‘protected payments’.

If you were already receiving the state pension before 6 April, 2016, you’ll continue to receive it under the old rules.

When will I get my state pension?

Not everyone who lives in the UK is entitled to the full state pension. To qualify you must meet a number of government criteria. 

You must have worked in the UK, have reached state pension age, and made NI contributions for a number of years – or if you have not worked, either pay voluntary NI or be credited with them from the government.

People born between 6 October 1954 and 5 April 1960 can start receiving a state pension on their 66th birthday.

This applies to men and women, although previously women were able to receive their pension at a younger age. 

It will rise again to 68 between 2037 and 2039, affecting many people who are now in their 40s.

The government has a handy calculator to check what age you’ll get the state pension.

You don’t get the state pension automatically when you reach the qualifying age. You’ll receive a letter four months prior with instructions on how to apply.

How many years of NI contributions do I need to make?

For the old state pension you must have made 30 years of NI contributions to get the full amount. As long as you have made some NI contributions you were entitled to qualify for the minimum payment.

For the new state pension you must have made 35 years of NI contributions to get the full amount. These don’t have to be consecutive years, so if you’ve had a break you can still qualify.

To qualify for the new state pension at all, you must have made NI contributions for at least 10 years – unless you opted to pay the married women’s or widows’ reduced rate of NI prior to April 1977, in which case you might not qualify.

If you have at least 10 years of NI contributions but less than 35, you get a state pension based on the number of years you’ve paid NI for. The government has a website that lets you check how many NI qualifying years you currently have.

If you’re employed, Class 1 NI will be automatically deducted from your monthly pay packet, and your employer will also contribute to your NI. You pay no NI on the first £8,632 that you earn each year, and then 12% on earnings up to £50,000. After that, a reduced rate of 2% applies.

How much state pension will I get?

For 2020/2021 the old state pension pays £134.25 basic plus an average of £40 additional pension (sometimes known as “state second pension”) per week.

The new state pension pays a flat rate of £175.20 plus any ‘protected payments’. To get this full amount though you’ll need 35 years of NI contributions. If it’s any less the amount will be lower.  

Currently, increases to the state pension amount are protected by the “Triple Lock” which means it goes up by the highest of the annual rate of inflation, earnings growth or 2.5%. However, there is no guarantee this policy will last forever.

The idea of a flat rate payment under the new rules is confusing because if you made full NI contributions and built up additional state pension you’ll likely get more. If you ‘contracted out’ and paid less NI for a number of years you’ll probably get less.

Either way you’ll get whichever is higher: the amount you would have got under the old system, or the amount you would have got if the new system had been in operation throughout your working life.

Contracting out

Previously pension contributions could be taken out of the additional state pension scheme and the money instead paid into a private or workplace pension.

The idea was that this would reduce the government’s overall bill for the state pension.

If you were contracted out you would have paid NI at a reduced rate. Under the new state pension, like the old one, people who contracted out will get a lower state pension than those who didn’t.

If you did contract out but still have many more years of NI contributions to make, you can catch up until you’ve reached the full level of the new state pension.

How is the state pension calculated?

The Department for Work and Pensions uses a formula that takes into account the number of full NI qualifying years you have, contracted out periods and any additional state pension to calculate what state pension you’re due.

It’s easier to calculate if you’ve never been contracted out or earned any additional state pension.

If you have 30 NI qualifying years, you divide the full amount (£168.60) by 35, and then multiply that by 30. So your new state pension would be £144.51 per week.

How can I top up my contributions to qualify for a full state pension?

If you haven’t reached state retirement age and are concerned you might not have enough NI qualifying years to get the full amount, you can make additional voluntary Class 3 NI contributions.

If you need advice on whether it’s worth topping up your state pension contributions, speak to the Pensions Advisory Service on 0300 123 1047.

You can request a state pension statement online or by phone. This lets you see how much state pension you’ve built up so far.

Can I still get a state pension if I’m self-employed?

If you are self-employed, you will make Class 2 NI contributions. Do this for 35 years and you’ll still qualify for the full state pension. Class 2 NI contributions are £3 per week if you have profits higher than £6,475 a year for 2020/2021.

Self-employed people also pay Class 4 NI of 9% on profits of between £9,501 and £50,000 (2% for anything over this) for 2020/2021.

Can I defer receiving the state pension?

If you are still working and want to continue, you won’t be forced to take your state pension once you reach qualifying age.

The benefit to this is that for each year you defer, you’ll get just below a 5.8% increase in your state pension. This is lower than the 10.4% increase awarded under the old system – and you cannot take the deferred amount as a lump sum.

22 October 2020