Everything you need to know about the State Pension

The State Pension is a regular payment from the government when you reach a set retirement age, that’s based on the national insurance contributions you’ve made through your working life. I chatted with my colleague, Rian Timmins, all about the State Pension on The Retirement Café podcast this week.

When and how much?

The State Pension retirement age was recently equalised for both men and women at 65. However, it is going to be increasing over the next few years. By October 2020 it goes from 65 to 66, then it goes from 66 to 67 if you’re born after March 1961 between 2026 and 2028 and finally up to 68 between 2037 and 2039 for those born after March 1977.

The full State Pension is worth £168.20 a week at the moment, and it increases by what is called the triple lock. The triple lock guarantees the basic State Pension will rise by a minimum of either 2.5%, the rate of inflation, or average earnings growth, whichever is higher.

Getting a forecast

You can get your State Pension forecast through the government website. Register then log in and it will tell you how much you will receive. Your forecast will be based upon you continuing to contribute up to your retirement date and how many years you need to contribute to reach that.

It’s a good idea to be proactive and check your National Insurance records are up to date well in advance of your State Pension retirement age. How much are you going to receive? When? Do you have any gaps? It is a significant amount of money, and it could make a big difference to your retirement.

You need a minimum of 10 qualifying years to receive the State Pension, but that doesn’t necessarily mean you’re then entitled to the full State Pension. For that, you need 35 qualifying years, then you should receive £168.20 per week.

Could you have missing years in your National Insurance contributions that mean you won’t receive the full State Pension? Maybe you lived abroad for a while, were out of work or your earnings weren’t high enough to qualify. Do you have gaps in your national insurance contributions, meaning you won’t receive the full state pension? You may be able to make up those years by making class three national insurance contributions. However, it needs to be within six years of a tax year in which the shortfall occurred.

Thinking of deferring taking your State Pension?

It is possible, as long as you defer it for at least 9 weeks. That way, you will receive an increase in the pension you receive. It increases by 1% for every nine weeks you defer it, that works out just under 5.8% for every full year you defer. It’s quite a complex calculation to work out whether it’s of good value to do that. It’s worth looking into, because for some people it would work out well for them.

Around two months before your State Pension retirement date you should receive a letter. This letter tells you that you need to apply. If you don’t apply, you won’t receive your State Pension.

Getting that form filled out correctly, when you send it off, is really important to make sure then when you are looking into what you’re entitled to, they’ve got up to date information. Because it could make a big difference, there could be further pension that you should be receiving.

Spousal rules have changed

Under the new state pension, you don’t inherit anything from your late husband or wife, or civil partner. But, under the old state pension there may have been some entitlement to widow or widowers benefits from the additional state pension that they were eligible for. Tick the box on the application form to say if you’ve been widowed or are a widower. Be sure to claim what you’re entitled to.

The new state pension was introduced in 2016. Before then, there were a number of different pensions. If you contributed to one of those schemes, so the additional state pension, or the state second pension, you won’t have lost that entitlement. You can be in receipt of the full new state pension, but also an additional payment that is known as the protected payment. Check the rules

Is it worth it?

Some people question whether the state pension is worth claiming.

I would say ‘Absolutely!’

£168 a week may not sound much, but if you had to buy an annuity from an insurance company to provide £168 per week – or £8,700 a year – that would cost you £150,000. It’s a valuable source of income.