State Pensions Guide
Basic State Pension
Where does the money come from to pay for the state pension?
How much will I get from the Basic State Pension?
State Pension Age Pension Credit State Second Pension|
Basic State Pension |
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Contrary to popular belief, the basic state pension is not automatically given to men and women when they reach retirement age (currently 65 for men and 60 for women).
To qualify for the basic state pension, you must have worked in the UK at some time during your working life and paid national insurance contributions to the government.
Depending on how many contributions you have made will dictate how much basic state pension you will get when you reach retirement age.
The money needed to pay for the basic state pension comes from taxation. So everyone who pays tax in the UK contributes towards the UK basic state pension, which means that all the people working in the UK and paying tax, are contributing towards the basic state pension of those people in the UK that are claiming it. Therefore, when you pay national insurance contributions to the government, you are paying for the basic state pension of the current crop of pensioners, and when it comes to your turn to retire, then your basic state pension will be paid for by those people working in the UK and paying their national insurance contributions.
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How much will I get from the Basic Pension? |
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The amount you receive from the basic state pension will depend on how many national insurance contributions (NICs) you have made during the time you were working in the UK. To qualify for the full basic state pension at the present retirement age of 65, a man would have to have contributed NICs for 44 years, most of his working life. For a woman to qualify for the full basic state pension at the present retirement age of 60, she would have to have contributed NICs for 39 years. If you have not paid NICs for the full amount of years, then your state pension may be reduced. At present the full basic state pension for 2008 – 2009 is 90.70 GBP per week. However, due to changes in the law regarding UK pensions, from 2010, men and women who qualify for a basic state pension after 6th April 2010, will only need to have paid NICs for thirty years of their working life to receive a full basic state pension.
The age when you can claim your state retirement pension is at present 65 years for men born on or before 5th April 1959, and for women the age when they can claim their state retirement pension is at present 60 years for women born on of before 5th April 1950.
However, from 6th April 2010, the age at which women
in the UK can retire will increase from 60 in the year 2010, until it reaches 65
in the year 2020.
What this means is that women born on or after 6th April
1950 and before 6th April 1955, will have a state pension retirement age between
60 and 65 depending on their date of birth. Women born on or after 6th April
1955 and before 6th April 1959 will have a retirement state pension age of
65.
The state pension retirement age for both men and women will increase
from 65 to 68 between the years 2024 and 2046, with each change phased in over
two consecutive years in each decade. The first increase, from 65 to 66, will be
phased in between April 2024 and April 2026, the second, from 66 to 67, will be
phased in between April 2034 and April 2036, and the third, from 67 to 68,
between April 2044 and April 2046.
Your State Pension age is different from
your retirement age. Your retirement age, that is the age at which you choose to
retire, is not bound by law, whereas your State Pension age is the legal age at
which you can start claiming your State Pension.
- £124.05 a week if you are single or
- £189.35 a week if you have a partner
So if you only receive the basic state pension, you would be able to claim pension credits to bring your retirement income up to guarenteed minimum amount for a person over 60 years old. However, because pension credits are means-tested, if you have £6,000 or more in savings, the pension credit benefit reduces dramatically.
Some sources state that nearly 5 million of the UK’s 11 million pensioners are liable to claim pension credits, this works out that over 2 million of UK pensioners that are entitled to claim pension credits, don’t. This may be because they don’t know about pension credits, or filling in the forms is too much of a hassle, maybe the just don’t want to disclose their financial details. Even though it helps to lower pensioner poverty, pension credits receives a lot of flak for acting as a deterrent for people on low income saving for their own retirement.
The minimum payment is low and there is no charge levied for stopping payments and restarting them at a later date, you can also change to a different pension provider without the provider you leave charging you.
Stakeholder pensions are very similar to other personal pensions, you contribute into your pension to build up your pension pot. The fund managers of the stakeholder pension scheme invest the money contributed by you and build it up into an amount you can purchase an annuity with, from a life insurance company of your own choosing.
Just exactly how much you will end up with to buy your annunity will depend on how much you have put into the stakkeholder pension fund, and how successful was the stakeholder pension fund manager in investing your stakeholder pension fund.
