For some people, state pension would be the only income at retirement and for others, it would be an addition to the workplace pension or private pension. You must understand your entitlement and the income from pensions meets your needs in retirement.
What is a State Pension?
In short, a state pension is a regular payment from the Government, usually weekly, once you reach state pension age and is based on your national insurance contributions through your adult life.
When can I get a State pension?
Your entitlement to State pension can vary depending on your circumstances, based on your date of birth and gender, and whether you have a personal or workplace pension. You can check your state pension age here.
Who can get a State pension?
If you are a man born before 6 April 1951 or you are a woman born before 6 April 1953, you can claim the basic state pension. In 2016, the New State Pension was introduced for people born on or after these dates.
How much is the Basic State Pension?
To get basic state pension you must have credited with national insurance contributions. The basic state pension currently stands at £134.25 per week.
This amount increases every year by whichever is the highest of the following, also known as the “triple lock.”
- Earnings – the average percentage growth in wages (in Great Britain)
- Prices – the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI)
- 2.5%.
New State Pension after 2016
You will need 35 qualifying years to get the full new State Pension. You will get a proportion of the new State Pension if you have between 10 and 35 qualifying years.
A ‘qualifying year‘ is a tax year (April to April) during which you have paid, have been treated as having paid, or have been credited with enough National Insurance Contributions (NICs) to make that year qualify towards a Basic State Pension.
State Pension – Top Tips:
1. When you reach state pension age, you have to claim it… it does not come automatically to you.
One of the things you can do is defer or delay claiming your state pension. What this does is that it not only allows you to claim your state pension when you are ready but could also increase the payments you get when you decide to claim it. The downside of this, however, is that you could be taxed on the extra money you receive from the deferment.
2. 2016 is an important year for State Pensions…This is where it gets a little confusing, but we’ll try and simplify it.
| State Pension age before 6 April 2016 | State Pension age after 6 April 2016 |
| Basic State Pension – £134.25 per week 2020/21 | Basic State Pension – £175.20 per week 20/21 |
| Deferred State pension – £148.21 per week 2020/21 | Deferred State Pension – £185.36 per week 2020/21 |
You can start deferring your pension even if you’ve already started drawing it and can choose to defer it for as long as you want. Give us a call on 0208 515 1200 to break it down further and understand how it applies to you.
Clearing up the Death and Deferment confusion…
In an article in thisismoney.co.uk, former pensions minister Steve Webb clarifies that, for those who reached state pension age after 6 April 2016, where someone defers taking their state pension and then dies before making a claim, the most that fall due to their estate is three months of ‘backdated’ state pension.
Even if they did have a spouse, there is no general entitlement to ‘inherit’ the pension payments that were never paid.
The background to this is the changes to the state pension system in April 2016. Before this date, people had two options concerning deferring their state pension.
- One was simply to take their pension later and draw a permanently increased weekly rate.
- The other was to build up a taxable lump sum, equal to all the missed pension payments plus interest.
Under these rules, if someone had decided to defer taking a pension and had opted to build up a lump sum, their heirs and successors could receive that lump sum.
But under the new system, the ability to opt for a lump sum disappears. Those who defer are simply opting to have a higher state pension when they eventually draw it – an increase of 5.8 percent for each year of deferral. If they die before claiming a state pension there is no lump sum alternative.
Whatever you decide, we suggest that first, you get expert advice from an experienced pensions adviser, who will be able to consider your circumstances before recommending the best course of action for you.
Want to discuss your future retirement plans?
The Duke Godley team has a wealth of experience in advising families on how to maximise and manage their pensions. Give us a call on 0208 515 1200 if you think we can help or drop us a line at info@dukegodley.co.uk and we’ll get back to you.
“Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances.”
“The FCA does not regulate taxation or estate planning.”
https://www.gov.uk/contact-hmrc
https://www.gov.uk/government/organisations/department-for-work-pensions
