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State Pension

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How much money will you receive from your State Pension when you retire? Do you know where to go to get advice about your pension? If not, UK surveys show that you are not alone with many people totally in the dark when it comes to their state pension entitlement.

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What is the State Pension? – The State Pension is paid to everybody who has worked and paid National Insurance Contributions through their working lives. It becomes payable when you reach State Pension age. For men this age is currently 65 and for women this means from when you reach either the age of 60 or 65, depending on your year of birth.

Does everybody receive it? - You will receive a Basic State Pension if you have made enough National Insurance Contributions. These contributions are payable from the age of 16 to 65. This does not mean that you will have to work 49 years in order to contribute enough. It is worth noting that National Insurance Contributions can sometimes be made on your behalf when you are unemployed or a full time carer and that you can also make voluntary contributions, if, for example you have a National Insurance shortfall in a particular year. Furthermore, you are allowed five full years of no contributions at all. This means that you actually have to contribute enough for 44 years in order to qualify for a State Pension at the age of 65. If you have not paid enough contributions you may receive a partial pension or if you have paid less than 25% you may receive nothing at all.

How much money will you receive? If you have paid enough National Insurance Contributions the current Basic State Pension amount for 2006/7 is £84.25 (single) and £134.75 per week. This will increase annually in line with the Retail Price Index.

Depending on your individual circumstances, you may be entitled to an Additional State Pension (also called the State Second Pension and formerly the State Earnings Related Pension Scheme (SERPS)). As its name suggests, additional State Pension is paid in addition to the basic State Pension.

Up to April 2002, SERPS was based on your record of National Insurance contributions and your level of earnings as an employee.

On 6 April 2002, the State Second Pension reformed SERPS to provide a more generous additional State Pension for low and moderate earners, and to extend access to include certain carers and people with long-term illness or disability. (Any SERPS entitlement already built up is protected both for those who have already retired and for those who have not yet reached State Pension age.)

The State Second Pension gives employees earning up to £27,800 (in 2005/06 terms) a better pension than SERPS, whether or not they are contracted out into a private pension, with most help going to those on the lowest earnings (up to around £12,100 in 2005/06 terms).

Some employees are contracted-out of the State Second Pension by their employers or by a personal pension scheme.