For most of us, the prospect of living on only the basic State Pension isn’t very appealing. Some of us may not even be entitled to the full amount. That’s why it’s important to plan ahead so you can look forward to a more comfortable pension in retirement.
Q. How much is the basic state pension?
A. £95.25 a week¹ for a single person £152.30a week¹ for a couple (married or in a civil partnership)
These amounts depend on the number of ‘qualifying years’ you’ve worked. A qualifying year is a tax year where you’ve earned enough to have paid, or been credited with, National Insurance contributions. As a general rule, to get the full basic state pension you need to have worked for 44 qualifying years if you’re a man and between 39 and 44 years if you’re a woman. This is reducing to 30 years for both men and women from 2010. You need to have worked for at least 10 years to qualify for the minimum amount of basic state pension of £23.81 a week¹.
Q. What about Pension Credit?
A. Pension Credit is a means-tested benefit that guarantees a minimum level of income from the state. It’s made up of the Guarantee Credit and the Savings Credit.
If you’re 60 or over, you can claim the Guarantee Credit. It guarantees a minimum income of £130.00 a week for single people and £198.45 for married couples or civil partnerships.
If you’re over 65 and have a private pension or modest savings, the Savings Credit could give you a top-up. You could get up to a maximum of £20.40 a week if you’re single, or £27.03 a week between you if you’re married or have a civil partner.
Q. Am I entitled to the State Second Pension (S2P)?
A. Depending on your circumstances, you may be able to receive extra state pension.
The State Second Pension or S2P was formerly known as the State Earnings-Related Pension Scheme (SERPS). It’s paid on top of your basic state pension. However, it’s different from the basic state pension because:
- it’s related to how much you’ve earned over your working life
- you can leave S2P by ‘contracting out’ or rejoin it later by ‘contracting back in’
Contracting out doesn’t affect your entitlement to a basic state pension but you will need to take out a private pension. The company that provides you with the private pension will then claim your contracted-out National Insurance contributions from the government and invest them for you.
You can’t build up any entitlement to S2P for any period of time where:
- you’re not working (unless you’re a carer or long-term disabled person)
- you’re self-employed
- you earn less than the annual lower earnings limit of £95 a week²
- you’ve already contracted out through a personal pension and you earn over £13,900 a year (the lower earnings threshold for 2009/10)
- you’re already contracted out through an occupational pension scheme and you earn over £31,800 a year (the upper earnings threshold for 2009/10)
In the Pensions Act 2007 the government announced changes to contracting out, to apply from 2012. These will involve the ending of contracting out through defined contribution (money purchase) schemes.
Q. What if I don’t take my state pension right away?
A. If you put off retiring for more than a year, you can then decide to take a one-off lump sum payment or increase your weekly pension. How much you get as a lump sum or extra pension will depend on your individual circumstances.
You may not want to think about your pension just now, particularly if you’re still a long way from retirement. But small savings now could make a big difference to your quality of life in the future. This information is based on our understanding of current taxation law and HM Revenue & Customs practice, which may change.
Don’t leave your retirement to chance. The sooner you know your situation, the more time you’ll have to plan for a happy retirement.
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¹ The Pension Service, part of the Department for Work and Pensions, April 2009
² HM Revenue & Customs, April 2009