basic state pension
The basic state pension* provides the foundation income for most people in retirement. The Government pays the basic state pension to people who have reached State Pension Age* and have claimed it.
It is important to remember that the basic state pension is not automatically available to everyone. You qualify for the basic state pension if you have paid and are credited with enough National Insurance Contributions. If you haven’t made enough contributions over the years your basic state pension will be reduced and if you don’t make a minimum number of contributions you won’t quality for any basic state pension at all. So it’s important that you make sure that you make enough National Insurance Contributions.
What is State Pension age?
You won’t start to get a state pension until you reach the state pension age. You can put off the start of your state pension age which means you could get either a bit of extra pension or a lump sum. The state pension age is currently:
- 65 for men
- 60 for women born on or before 5 April 1950
The state pension age for women is set to rise to 65 between 2010 and 2020. If you’re a woman born between 6 April 1950 and 5 April 1955, your date of birth will determine when you reach state pension age. You can work out your state pension age online by using the government calculator at www.thepensionservice.gov.uk/resourcecentre/statepensioncalc.asp
From 6 April 2020, the State Pension age for both men and women will be 65.
You do not have to retire when you reach State Pension age. You can:
- continue to work while claiming your state pension
- put off claiming your state pension until later to get a higher weekly pension, or a one-off taxable lump-sum payment, depending on how long you put off claiming for.
Claiming your state pension
It is important to remember that you don’t receive the state pension automatically. It’s up to you to claim it. You will usually be sent an invitation to claim when you are four months away from State Pension age.
Basic state pension
The basic state pension is a ‘flat rate’ pension which means that everyone who qualifies get the same pension – it is not linked to a persons earnings.
The figures below set out the value of the full basic state pension you would receive assuming the National Insurance Contributions have been made for the minimum number of years.
Value of basic state pension 2009/10
Wife on husband’s contribution
Married couple on husband’s contributions
Married couple/ civil partnership if both have paid full contributions
The basic state pension is meant to provide a basic foundation income in retirement.
Who gets the basic state pension?
The rules can be complex but it’s likely you’ll be building up some basic state pension if you fall into one of the following groups and you’ve made or been credited with enough national insurance contributions:
- An employee who earns at least a minimum of £95 a week (in 2009/10). This is known as the lower earnings limit (LEL*). Employees pay what’s called Class 1 contributions
- Self-employed people who have paid national insurance contributions – called Class 2 contributions. If you are self-employed you can choose not to pay national insurance contributions if your profits are less than £5,075 a year (for 2009/10) tax year).
- People who are credited with national insurance if for example you need to claim state benefits when you’re ill, unemployed or on maternity leave.
How is your entitlement to the basic state pension worked out?
The value of the basic state pension you get depends on what is known as ‘qualifying years’. So the more qualifying years you build up over your working life, the higher the value of basic state pension you’ll get when you retire.
Gaps in your national insurance record can reduce the value of the basic state pension you get. However, you may be entitled to national insurance credits or what’s known as Home Responsibilities Protection to plug the gap.
Qualifying years are the years in which you have been paying, treated as paying or credited with National Insurance contributions. In certain circumstances, you can be credited with contributions if you’ve not been able to do paid work.
For a year to be count as a qualifying year, you need to have paid a whole year’s worth of National Insurance Contributions – or treated as if you have paid them. So, if you’re an employee you must have paid 52 Class 1 contributions; if you’re self-employed, 52 class 2 contributions; you can pay a mix of Class 1 and Class 2 contributions covering the full 52 weeks.
At the moment, men and women have different State Pension ages - although that is changing. So the number of qualifying years needed to get the full basic state pension will also be different. If you haven’t always worked you may still be able to receive credits for periods when you’ve been out of work, had long-term illnesses and injuries, or been getting Carer’s Allowance because you are caring for someone who is seriously sick or disabled. This means that the Government will add some contributions to your National Insurance record for you – so you will still be building up a State Pension for those years.
You may also get help from Home Responsibilities Protection (HRP*) to protect your basic State Pension if you are:
- caring for a child under 16 and you receive Child Benefit
- caring for a sick or disabled person
- an approved foster carer
Summary of the rules
To summarise, the current rules relating to the basic state pension are as follows:
- if you’re a man, you normally need to have built up 44 qualifying years to get the full state pension
- if you’re a women you must normally have between 39 and 44 qualifying years to get the full state pension, depending on the date you reach your state pension age.
- as the value of the basic state pension you get depends on qualifying years, the fewer qualifying years you have built up, the lower the basic state pension you get.
- the minimum basic state pension is currently only 25% of the full state pension - to get the minimum basic state pension, you normally need 10 or 11 qualifying years, depending on your state pension age.
- if you don’t build up the minimum qualifying years you will not normally get a basic state pension
- if you have Home Responsibilities Protection, the number of qualifying years needed to get a state pension will be reduced. HRP does not credit you with National Insurance contributions, but it does reduce the number of years that you need to have paid contributions to get a State Pension.
- The Pensions Act 2007 has reduced the number of qualifying years needed for a full basic State Pension to 30 for people who reach State Pension age on or after 6 April 2010.
It is worth regularly checking the number of qualifying years you have paid or been credited with National Insurance Contributions especially if you have not been in permanent employment. You can do this by contacting the State Pension Forecasting Team at www.thepensionservice.gov.uk.
If you want to increase the number of qualifying years you have and so increase the amount of basic state pension you’re entitled to, then you may be able to pay voluntary National Insurance Contributions.
What happens if you’re on a low income?
If you’re a single person and qualified for the maximum basic state pension, you’d be entitled to £95.25 (2009/10) a week, or if you’re a married couple, £152.40 a week. But this is below the minimum level the government thinks pensioners should live on. This is called the minimum guarantee. The minimum guarantee in 2009/10 is £130.00 a week for a single person and £198.45 for a couple. If your income is lower than that you can claim pension credit* to bring your income up to that minimum level.
Paying National Insurance Contributions
To get the basic state pension, you must have paid, been treated as having paid, or been credited with enough National insurance contributions. So it’s important to make sure your contributions are being paid.
Certain types of national insurance contribution do not count towards building up your entitlement to a basic state pension. It can be complicated but generally the types that count are: Class 1 contributions (those paid by employees), Class 2 (paid if you’re self-employed) and Class 3 contributions (voluntary contributions).
If you’re employed, most employers will deduct your national insurance contributions straight out of your wages. You can see how much you’re paying on your payslip. But if you’re self-employed, then it’s up to you to make sure that you pay your own contributions. The following checklist provides a quick guide to check whether contributions are being paid. However, it is not an exhaustive list and if you’re not sure it is worth double checking.
- If you’re in paid work and earn more than £110 a week (for 2009/10) from a single employer, you will pay national insurance contributions through your wages
- If you earn between £95 and £110 a week from a single employer, you will be treated as if you have paid national insurance contributions
- You may be entitled to national insurance credits if you have not been able to make contributions - if for example you haven’t been able to work because of an illness or been getting Carer’s Allowance
- If you’ve been caring for children, been a foster carer, or been looking after a seriously ill or disabled person (but not able to get Carer’s Allowance) then you may have the number of qualifying years reduced to increase your entitlement to the state pension.
- If you’re self-employed and your profits are less than £5,075 a year (in 2009/10) you can apply not to pay national insurance contributions. Even if you’re making low profits as a self-employed person, at just £2.40 a week, it seems that making national insurance contributions is well worth doing to build up entitlement to a state pension.
If you want to get a forecast of how much your state pension will be worth then contact The Pensions Service at www.thepensionservice.gov.uk
Paying voluntary contributions
If you have gaps in your national insurance payments record then this could reduce your basic state pension. However, you may be able to fill the gaps by paying voluntary Class 3 National Insurance Contributions and so increase your basic state pension (but these voluntary contributions do not increase your additional state pension*). You can go back a maximum of six years to fill the gaps. HM Revenue and Customs should automatically send you a letter if you have gaps in your record and ask you if you want to make voluntary contributions. If not, then contact HMRC.
Putting off claiming your state pension
If you put off claiming your state pension until later you could get a higher weekly pension, or a one-off taxable lump-sum payment, depending on how long you put off claiming for.
Extra State Pension
You can get extra state pension if you put off claiming it. This is worked out at 1% for every five weeks you put off claiming - equivalent to about 10.4% extra for every year you put off claiming. If you choose to go for the extra state pension option, you will not be paid state pension for the weeks you put off claiming it as you will get a higher state pension instead. You must put off claiming your state pension for at least five weeks to get extra state pension.
A lump-sum payment
You could get a one-off taxable lump-sum payment based on the amount of normal weekly state pension you would have received plus interest. You also get your state pension from when you claim it paid at the normal rate.
You must put off claiming your State Pension for at least 12 months in a row to be able to choose a lump-sum payment. The amount you get will depend on your circumstances. But someone putting off a full basic State Pension of £80 a week for five years could, at current prices and interest rates, get a lump sum of just over £20,800 or extra state pension of nearly £42 a week for life – which, when added to your normal state pension, would give you £122 a week.
Putting off claiming state pension may not be right for everyone. If you are interested in putting off claiming your state pension, it is important to find out more before you decide. The government has produced a detailed information guide to help you called SPD1 A guide to State Pension Deferral.