What The State Provides In Retirement

What the State provides in retirement – Pensionfinder

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    What the State provides in retirement

    A survey early this year found that around one in five people intended to live on just the State pension in retirement.*  Unfortunately, few people realise just how little they will get from the State.

    As of April 2016 a full basic weekly State pension will be just £97.65 for a single person and £156.15 for a couple.  According to the Office of National Statistics around 2 million pensioners live in poverty, which many believe is made worse by a confusing array of pension benefits and credits.

    To help make the State pension fairer for all, the Government has introduced several important changes to the State pension which come into effect from April 2016.  In particular these affect eligibility for the full State pension, the qualifying age and changes to Home Responsibility Protection.

    The basic State pension

    Many people assume that they will qualify for the full State basic pension, but many people do not.  It all depends on the amount of National Insurance contributions you have made and the number of years you have worked.

    At the moment, you should be eligible for the basic State pension if you have paid enough National Insurance (NI) contributions for a set number of years.  This is currently 44 years for men and 39 for women.  However, this all changes from April 5th 2016, when both sexes will need just 30 years to qualifying for a full basic State pension.

    The current qualifying age for the State pension is 65 for and 60 for women.  However, this too is about to change and the qualifying age for women will gradually increase to be 65 by 2020.  Longer term, an increase in life expectancy has led the Government to take steps to increase the qualifying age for both men and women.  The qualifying age will gradually rise from age 65 to 68 between 2024 and 2040.

    If you don’t have enough qualifying years to get a full basic State pension you may still get a State pension – albeit a smaller one.  You may not qualify for any State pension if you have less that 25% of the qualifying years.  However, you may be able to make additional National Insurance contribution to boost your qualifying years so that you get a full, or at least some, State pension.

    The State second pension

    Some employed people above certain earning limits may be making contributions to another State Pension, known as the State second pension or SERPS.  For these people, the amount of State Second Pension they’ll receive will depend on their earnings and National Insurance Contributions over the course of their career.

    If you are a member of a company pension scheme you may be contracted-out of the State Second pension, which means that some of your NI contributions are rebated to this pension scheme. Check you occupational pension scheme details for more information.  Or, you may have done this yourself and opted out of SERPS into a personal or stakeholder pension.

    At the moment the amount of State second pension you’ll receive is linked to past earnings.  This is changing to a flat rate which will be gradually phased in between 2017 and 2030.

    Help for carers

    If you do not have enough qualifying years because you stopped work to look after children or become a long-term carer for someone, you may be able eligible for Home Responsibility Protection (HRP).  This can lower the number of qualifying years needed for the basic State pension for those that will reach the State pensionable age before the 6th of April 2016.  After this date, HRP will be replaced by National Insurance Credits, a new system of weekly contribution credits.

    Pension credit

    The Government has also introduced a means tested system of Pension Credit.  It is designed to help people with a small private pension or savings.  It acts as a top-up to the pension ensuring that people aged 60 or more have a minimum weekly income.

    It pays to plan ahead with pensions

    The State pension system in the UK is very complex.  If you want to work out what you can expect to get from the State in retirement you can check your entitlement by through a Department of Work and Pensions online assessment or ask a financial advisor.

    Ideally the State pension should be thought of as supplementary pension income to other pension income and savings in retirement.  On its own it is unlikely to provide enough income for a comfortable retirement.

    (* Online survey for Prudential UK of 6,073 UK adults aged 45 or more, published 27 January 2016)