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.Â
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.Â
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.
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 âprotected paymentsâ.
If you were already receiving the state pension before 6 April, 2016, youâll continue to receive it under the old rules.
Not everyone who lives in the UK is entitled to the full state pension. To qualify you must meet a number of government criteria.Â
You must have worked in the UK, have reached state pension age, and made NI contributions for a number of years â 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.Â
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 youâll get the state pension.
You donât get the state pension automatically when you reach the qualifying age. Youâll receive a letter four months prior with instructions on how to apply.
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 donât have to be consecutive years, so if youâve 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 â unless you opted to pay the married womenâs or widowsâ 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 youâve paid NI for. The government has a website that lets you check how many NI qualifying years you currently have.
If youâre 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 ÂŁ8,632 that you earn each year, and then 12% on earnings up to ÂŁ50,000. After that, a reduced rate of 2% applies.
For 2020/2021 the old state pension pays ÂŁ134.25 basic plus an average of ÂŁ40 additional pension (sometimes known as âstate second pensionâ) per week.
The new state pension pays a flat rate of ÂŁ175.20 plus any âprotected paymentsâ. To get this full amount though youâll need 35 years of NI contributions. If itâs any less the amount will be lower. Â
Currently, increases to the state pension amount are protected by the âTriple Lockâ 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 youâll likely get more. If you âcontracted outâ and paid less NI for a number of years youâll probably get less.
Either way youâll 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.
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 governmentâs 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 didnât.
If you did contract out but still have many more years of NI contributions to make, you can catch up until youâve reached the full level of the new state pension.
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 youâre due.
Itâs easier to calculate if youâve never been contracted out or earned any additional state pension.
If you have 30 NI qualifying years, you divide the full amount (ÂŁ168.60) by 35, and then multiply that by 30. So your new state pension would be ÂŁ144.51 per week.
If you havenât 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 itâs 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 youâve built up so far.
If you are self-employed, you will make Class 2 NI contributions. Do this for 35 years and youâll still qualify for the full state pension. Class 2 NI contributions are ÂŁ3 per week if you have profits higher than ÂŁ6,475 a year for 2020/2021.
Self-employed people also pay Class 4 NI of 9% on profits of between ÂŁ9,501 and ÂŁ50,000 (2% for anything over this) for 2020/2021.
If you are still working and want to continue, you wonât be forced to take your state pension once you reach qualifying age.
The benefit to this is that for each year you defer, youâll get just below a 5.8% increase in your state pension. This is lower than the 10.4% increase awarded under the old system â and you cannot take the deferred amount as a lump sum.