State Pension Advice
State pensions are the building blocks for most people’s income in retirement. In practice, most people will receive an income from a number of sources, for example, state pensions, private pensions and company pension schemes. State pensions are taxable but are always paid gross, ie, no tax is deducted from the payment. Rather, state pensions will utilise the initial part of your personal allowance, with the balance of your income then being subject to tax at your normal rates.
How much will I get?
The single person’s full basic state pension currently stands at £95.25 per week, with the dependant’s addition of £57.05, making the total pension for a married couple of £152.30 per week (during the tax year 2009/2010). Importantly, both a husband and a wife may be able to each claim an individual entitlement to the basic state pension, boosting overall income by over £35 per week.
State pensions, and your entitlement to them, are based on your national insurance contributions record.
How do I qualify?
To qualify for basic state pensions, you need to have made national insurance contributions (or have been credited with them, for example during periods when you have caring for someone or maternity leave) for at least 11 years, although if you wish to receive a full basic state pensions, then currently you need to have made national insurance contributions for 39 years for a woman and 44 years for a man.
With effect from 2010, however, you need only have accumulated 30 qualifying years to receive full basic state pensions. This means that if you are contributing voluntary class 3 contributions in order to boost your entitlement, unless you are due to retire before 2010, this could be money wasted.
National insurance contributions are divided into four classes 1 to 4 and only classes 1, 2 and 3 count towards your entitlement to basic state pensions.
Class 1 contributions are paid by employed persons and are based on a percentage of a proportion of your earnings.
Class 2 contributions are paid by the self employed and are paid at a flat rate.
Class 3 contributions are voluntary for those wishing to increase their entitlement.
Class 4 contributions are payable by the self employed and are based on a percentage of profits over a certain level. These contributions are compulsory and provide no further benefits over those provided by Class 2.
In addition to basic state pensions, you may also qualify for one or more of the following state pensions:-
State Second Pension – replaced SERPS and is more generous to lower earners than its predecessor.
State Earnings Related Pension Scheme (SERPS) – earnings related top-up which was replaced in 2002 by the State Second Pension
Graduated Pension – Some older people may be eligible for Graduated Pension. This was accrued between 1961 and 1975 when it was replaced by SERPS. It is often very small, invariably only a few pounds a week.
It is important as you approach state pension age, you review your anticipated income from all sources and the easiest way to get an estimate of your entitlement to state pensions is to obtain a pensions forecast from the Pensions Service which will give you an idea of how much you are likely to receive in retirement. This information will be vital in planning for your retirement. Planning for your retirement should always be carried out in conjunction with a knowledgeable independent pensions specialist and the Fairinvestment.co.uk pension service* can help you plan for your retirement by: