Updated 03 December 2020
The government provides a small state pension to all eligible people once they reach a certain age. However, you should think of this as a top-up to your other income, as on its own it is usually not enough to live on.
The UK's new state pension is a guaranteed income for life, paid weekly to everyone who qualifies for it. Read on to find out how you can qualify, how much you could get and when you can start to claim it.
You are eligible for the state pension provided that you have at least 10 qualifying years on your National Insurance (NI) record. A qualifying year means a year in which you earn over the Lower Earnings Limit as salary (dividends don't count). How much you receive will also depend on how many qualifying years you have. You need at least 35 qualifying years to qualify for the full amount.
You don’t actually need to have paid National Insurance Contributions (NICs) to qualify for the state pension, though usually you will. To build up qualifying years, your salary must be at or over the Lower Earnings Limit (currently £6,136). However, you don’t start paying NICs until you take a salary over the NIC Primary Threshold (currently £8,632). So if your salary falls between these two figures, you’ll build up qualifying years without paying any NI. For this reason, some company directors deliberately set their salaries at this low level, and take the rest of their income as dividends.
If you qualify for the full amount of new state pension, you will receive £175.20 per week, or £9,110.40 a year (tax year 2020/21). This amount rises each year at least in line with inflation, and often more. If you have fewer than 35 qualifying years, the amount you receive will be reduced proportionally.
If you reached state pension age before 6 April 2016, you will receive the old state pension instead, which may be a different amount.
The state pension age is currently 65 for both men and women, but may be different depending on when you were born. Answering the question ‘When will I get my state pension?’ means working it out from the year (and often the month) in which you were born. You can check your state pension age on the government’s website.
From April 2026 the state pension age will begin further increases to 66, and then to 67 by March 2028. It is expected to reach 68 by around 2044.
Of course! You can carry on working and earning once you’ve passed state pension age and begun to draw your pension, but you’ll no longer pay National Insurance after this point. Just remember that the state pension still counts as income, so could be subject to tax depending on how much other income you continue to earn.
You can earn as much as you like and continue to qualify for the state pension. However, you will pay tax on any income above the personal allowance.
Here's an example. The full new state pension gives you an annual income of £8,767. The personal allowance is £12,500 so you could earn up to £3,732 a year on top of the state pension before having to pay any tax at all. If you were to earn (for example) £10,000 a year while drawing the state pension, your taxable income would be £6,267 and you’d have a tax bill of £1,253. However, you wouldn’t pay any NI contributions.
If you’re still earning and also drawing the state pension, talk to a financial adviser to make sure you’re not wasting too much of your state pension in tax. It may make sense to scale back your hours or find another solution.
There are no longer any special state pension arrangements for married couples. Each partner in the marriage or civil partnership needs to build up their own state pension through qualifying years, and cannot benefit from their spouse’s state pension (which will cease when that person dies).
If one spouse does not work because they are caring for children aged under 12 and registered for child benefit (even if they don’t receive it) then they can accrue Class 3 NI credits for these years. These credits will build up qualifying years for the state pension.
Alternatively, anyone who isn’t employed can pay voluntary NI contributions to build up qualifying years.
If you live abroad or are planning to move abroad and want to claim state pension, you’ll need to contact the International Pension Centre. You can then arrange for your state pension to be paid directly into a bank account, either located in the UK or in the country where you’re living now. You can choose to be paid every four or 13 weeks.
If you choose not to take your state pension from the state pension age, the amount you’re entitled to will gradually rise. For every year you delay it, the amount you can receive will rise by around 5.8 per cent.
You might choose to do this if you were still working and didn’t want to lose state pension money in tax. However, this is something to discuss with your financial adviser, as it may still be in your best interests to take the money and bank it (or invest it) even if you don’t need to spend it yet.
Try our Pension Calculator to see how much retirement income you might receive from your private pension and what you can do to boost it.
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