A State Pension has been around for more than a century but what you get and when you can get it has changed a lot over the years, most recently with the Government introducing a new flat-rate State Pension in April 2016.
Here we cover some of the basics to help you understand what you might get and how this can support your income needs in the future.
How much State Pension am I likely to get?
In April 2020 the full State Pension rose to £175.20 a week, up from £168.60. It’s based on you having paid or been credited with 35 years of National Insurance (NI) contributions.
But, although it’s called the flat-rate State Pension, not everyone gets the full amount. How much you’ll actually get depends on your own NI record and when you start claiming it.
Some people may have already built up a higher entitlement to State Pension under the old rules, and where this applies, it will be protected.
How can I check what I should get?
It’s easy to check your NI record or your State Pension forecast, just like more than 20 million other people have already done at www.gov.uk/check-state-pension.
Can I make up for any gaps in my work history?
Gaps in your work history or being in certain types of pension schemes can mean you’ll get less. But you can also get NI credits for years when you’re not employed or have low earnings.
And, in some cases, claiming benefits such as jobseeker’s allowance can actually help you build and protect your State Pension entitlement.
How registering for child benefit can help your State Pension
Hundreds of thousands may be losing out on some of their State Pension because they opted out of receiving child benefit. In many cases parents thought a tax charge affecting those earning more than £50,000 would cancel out the benefit.
But registering for child benefit, even if you choose not to claim it, or end up having to pay some or all of it back through the tax charge, can help you build your State Pension through NI credits. You can visit Gov.UK to make a claim or use the Child Benefit tax calculator for more information.
Another little-known fact is that working-age grandparents who care for grandchildren under 12 can get NI credits to top up their State Pension. This was updated in recent months to include care via telephone or video to account for the effect the coronavirus pandemic may have had on grandparents’ ability to care for their grandchildren in person. You can find out more about NI credits and how to apply at Gov.uk.
At what age will I get the State Pension?
The State Pension Age is increasing to age 66 in line with this government timetable. It will rise again to 67 between 2026 and 2028 and is expected to rise further in the future.
Modern, flexible workplace and personal pension plans normally let you start taking your money from the age of 55, although this could change in the future.
Is the State Pension likely to be enough?
Probably not. The State Pension is a lot less than a minimum wage salary at around £9,110 a year for most people.
The reality is there’s a significant gap between what you get from the State Pension and what you’ll actually want in retirement. The State Pension alone will only cover a very basic lifestyle and, because it only starts in your late 60s, won’t help to support you if you want to retire earlier. So it should only be a part of your overall retirement plan.
And it’s also why it’s so important to fully understand how much you need to save into your pension plan to be able to afford the retirement you want. Our pension calculator can help you see if you’re on track for this.
Are there likely to be any further changes to the State Pension?
One change that has been widely talked about recently is how increases to the State Pension are made.
Currently, increases to the State Pension have been based on something known as the ‘triple lock’. This was to make sure that its value wasn’t negatively affected by rises in inflation. In practice, what this means is that the State Pension increases by the highest of the following:
- the average percentage increase in UK earnings
- the percentage increase in the cost of living (measured by the Consumer Price Index (CPI))
So, for example, if average earnings increased by 3%, but the cost of living rose by only 2%, then the State Pension would increase by 3%.
Similarly, if both average earnings and the CPI increased by less than 2.5%, the State Pension would still rise by 2.5%.
It’s widely expected that the Chancellor will announce temporary changes to the triple lock in the upcoming Autumn Budget.
What can I do to make sure that I have enough money when I retire?
Firstly, get informed so that you know what you’re likely to get from your State Pension, and when. And bear in mind that you might be able to top up your NI contributions to get more.
Secondly, think about taking steps to boost the money you’ll get from your private or workplace pension by increasing your contributions. Some employers also offer matching schemes, so doing this could mean your employer will pay in more too. And don’t forget that you can also use savings such as ISAs (Individual Savings Accounts) to supplement the money you’ll get from any pensions you have and the State Pension.
Finally, it’s a good idea to regularly review your private or workplace pension plan to make sure it’s on track. If you’re a Standard Life customer, you can do this through online services. And if you want a full picture of all your private and workplace pensions, as well as your potential State Pension entitlement, use our simple
Personal and workplace pensions, as well as some types of ISAs, are investments and their value can go down as well as up and may be worth less than was paid in.
Tax and legislation may change and your personal circumstance also have an impact on your tax treatment.
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The information here is based on our understanding in August 2020 and shouldn’t be taken as financial advice.