The State Pension
How much is The State Pension
The problem with the State
Pension
Qualifying for the State
Pension
Your personal State Pension
Forecast
The DSS may get it wrong
Been Travelling the world
dude?
Part time workers
Increasing your State pension
Is the State Pension taxed?
Minimum income guarantee
Can you add your State pension
to a personal pension?
OR an
Occupational Pension plan?
State Pension for those
retiring overseas
SERPS (the State Earnings
Related Pension)
The self employed and
SERPS
The state second pension
History of the State Pension
State Pension if you're Working
Within the European Union
How much is The State Pension
The Basic State Retirement Pension for a single person
is £90.70 for 2008/2009.
This is lower than the income support threshold, so if
they have no other income state pensioners can top up with
income support.
How much they get depends on their specific circumstances
e.g. they may also be eligible for Disability Living
Allowance or other categories of state benefit.
(Ask your local DSS office).
If this sounds enough for you, excellent. If not you'll
need to start an occupational
pension, personal
pension or Stakeholder
pension to supplement your State pension.
Note: A large percentage of pensioners do not claim for all the benefits they could be eligible for. If you know a pensioner you could make enquiries on their behalf to their local DSS office.
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The problem with the State Pension
The main problem is that thanks to improved social and medical conditions people are now living longer. But at the same time population growth is slowing so there are fewer younger people entering the job market.
This means fewer taxes are raised, so there's less money to pay for state pensioners.
In 1949 there were approx. 4 million pensioners in the UK. There are now 10.5 million. This is expected to rise to 12.5 million by 2025 and to 14 million by 2050. While there are now 4.5 working people to every pensioner, by 2025 there will only be 3.5
Meanwhile all the time the actual value of the state pension
is getting less and less. Nobody actually knows if there
will be a state pension at all for the younger generation.
All developed countries are facing the same problem.
However the UK government has introduced a major pensions
reform. See how this will
affect the UK state pension
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Qualifying for the State Pension
You become eligible for the basic state pension - and benefits
from the Second State Pension - when you are 60 for women
and 65 for men (the age of the woman will gradually rise
to 65 between the years 2010 and 2020).
Contrary to popular belief the State pension is not an automatic right. Getting one at all, or how much you get, depends on your National Insurance (NI) contributions record i.e. how many you have made.
Generally you only get a full basic state pension if you have paid full rate National Insurance (NI) contributions for 90% of your working life (i.e. 49 years for men and 44 for woman).
( Your working life started when you left school i.e. at 16 or 18 NOT when you left further education).
If you have not made enough NI contributions
you may be able to make voluntary contributions.
Ask your local DSS
office about these but remember the DSS may get
it wrong so double check whatever they tell you.
In certain circumstances more basic pension can be claimed than your NI contributions record might imply. Two examples are:
- Home responsibilities protection is for people who look after a sick or disabled person for at least 35 hours a week, or receive child benefit for a child under 16. Your local DSS office is the best place to ask about this initially.
- Unemployed or sick: NI contributions credits will be made for you if you're off work so long as you're receiving Jobseekers Allowance or sickness benefit.
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DSS State Pension Forecast Service
The DSS provides a pension-forecast service whereby it will predict what state benefits you are in line to receive, including SERPS, based on your existing NI contributions.
Call 0845 300 0168. If you have your National
Insurance number ready, they'll fill out a form for you
over the phone in a couple of minutes. But it does then
take up to 40 days to receive the forecast through the post.
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Been Travelling the world dude?
We can confirm that in recognition of your services to the backpacking industry special consideration has been allowed by the DSS for you to receive special NI contribution credits.
Nyaaah. Only joking me old space cadet. (Your parents were right you slacker. You will pay).
But, seriously, if you've missed a few years for whatever reason you might be able to make back payments. See Voluntary NI Contributions / Class 3 and / or ask an IFA or call your local DSS office.
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Part time workers
If your earnings were less than the "lower earnings limit" (at the time of writing this is £3,952 a year), you may not be in line for a full pension. You might qualify for Home responsibilities protection. Or maybe you could consider making Class 3 Voluntary NI Contributions.
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Increasing your State pension
Voluntary NI Contributions / Class 3
To improve your State Pension prospects you can pay Class 3 Voluntary NI Contributions. Only those years with completely paid up NI contributions count towards your state pension. So if you had paid most but not all of a year's NI contributions it seems a good idea to make up the shortfall.
Not necessarily though. If you've no chance of making even
9 or 10 years of full NI
contributions then why bother?
In this case you need a different pension or savings plan
e.g. personal
pensions etc. If you can't afford anything else look
to the Minimum income guarantee to sort you out and maybe
check Alternative ways
of Saving.
The DSS can tell you exactly how many Class 3 NI contributions you would have to make. Call them and / or see DSS leaflets CA07 and CA08.
Note: At the time of writing you can only back date Class 3 NI contributions for six years.
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The DSS may get it wrong
While the DSS are the first people to ask, in the first instance, it is important to realise that because the system is so complex they may not get it right. In fact if you are retiring they may even miscalculate your entitlement (If this happens you can of course appeal but would need to know that they have made a mistake in the first place).
Sources of independent advice are your local Citizens Advice Bureau, your trade union or you could try the TUC (Tel 020 7636 4030).
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Is the State Pension taxed?
Yes. (Another great myth exploded). But usually the State pension is below the tax threshold. It depends on your personal allowance but basically the normal State Pension of around £3,510 pa, for a single person, is unlikely to be taxed if that is all the income you have.
However if you have extra income that - when added to your state pension - puts you over the tax threshold, then, you're taxed on the lot.
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Minimum income guarantee
The Labour government has introduced a law where regardless of your state pension entitlement or personal pensions there is a minimum income guarantee. This is "means tested" (ie you have to prove that you don't have over a certain level of savings - which is £6,000 at the time of writing).
The minimum income guarantee is approx ?80 a week for a single pensioner and £140 for a married pensioner couple at the time of writing. It rises for pensioners over the age of 80.
The minimum income guarantee is supposed to rise in line with National Average Earnings as opposed to the Retail Price Index - which the basic state pension is tied to - the former tends to rise faster.
Check with your local DSS office for the latest figure.
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Can you add your State pension to a personal pension?
Your entitlement to a basic State pension is not affected by having a personal pensions.
They will be taxed together e.g. Your state pension of £3,510 added to your personal pensions of, say, £10,000 = £13,900 gross pa. This would be taxed after your usual personal allowance.
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Can you add your State pension to an Occupational Pension plan
Your entitlement to a basic State pension is not affected by having an Occupational Pension.
They will be taxed together e.g. Your state pension of approx £3,510 added to your Occupational Pension plan of, say, £10,000 = £13,900 gross pa. This would be taxed after your usual personal allowance.
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State Pension for those retiring overseas
You can still get your state pension if you move to a sunnier place after retirement. But beware that it will be frozen at the rate when you left dear old Blighty unless you move to a country with an agreement with the UK.
Perhaps surprisingly, this includes the former Yugoslavia but not Australia, New Zealand or Canada. Oh well. Suppose the blood given for King and country by the Ozzies Kiwis and co, on all those sad battlefields, has been forgotten about.
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SERPS (the State Earnings Related Pension)
SERPS is perhaps best explained as an addition to your State Pension. It is supposed to reflect your earnings level. It used to be 25% of your salary during its best years. But is gradually being lowered to 20%.
Here's a useful article about SERPs which may be of interest to you:
Serps: all you ever wanted to know
The state earnings related pension scheme is a way to boost your retirement income. So, is it any good for you?
Tony Levene
Guardian, Saturday March 16, 2002
What is Serps? It is the state earnings related pension scheme. This provides a layer of retirement pay on top of the basic pension. It is related to earnings over a working life... Read more
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The self employed are excluded from SERPS
Everyone else who pays NI contributions is - "a member of" SERPS unless they've chosen to "contract out".
Contracting out of SERPS is when you decide to take out a personal pensions or become a member of an Occupational Pension plan and your NI contributions are paid into that pension instead.
SERPS "starts saving for you" from day one - unlike the State Pension where you have to make NI contributions for 10 years before qualifying for 26% etc. (see Table 5).
SERPS will eventually be wound down by being replaced with a new state second pension, introduced in 2002.
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The state second pension
SERPS is eventually being wound down to be being replaced
with the new state second pension. It is designed for low
earners who cannot afford to save in a Stakeholder
scheme
There are now a major changes
to State Second Pension planned
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History of the British State Pension
During the 18th century the poor relied on the Elizabethan "poor laws". The parishes had to support the poor and sick but not the "work shy". However the conditions of the notorious poorhouses and a growing social awareness, thanks to writers like Charles Dickens, meant that by the end of the 19th century, state intervention had become a vote winner.
The "Lloyd George Pension" of 1908 was a "means tested" flat rate five shillings paid to the poor aged seventy plus.
In 1925 state pensions were started for those 65 years plus.
The Beveridge report unified all the existing social welfare systems into what we now know as the welfare state - which was introduced by the Labour government of 1945.
In 1978 SERPS was introduced. The idea was to give people a pension income of around half the average earnings.
The Pensions Acts of 1995 equalised the pension age for men and women at 65 which will be achieved between 2010 and 2020.
Bismarck was apparently the first European leader to introduce a state pension - in Germany, in the 19th Century.
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State Pension if you're Working Within the European Union
There is now a pan-European pension system.
It includes a multi lateral agreement on social security. If you work in another EU State for longer than a year you have to start paying social security there.
Depending on the individual country's requirements you would have to pay different levels in order to qualify for pension benefits but when you return to the UK you can then claim the benefits you would have received in the other country.
The advantage here is that almost everywhere else in Europe the state pension schemes are much better than the UK's.
Check with your local DSS office for further details.
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