What’s the State Pension?

The State Pension: The Benefits You Need to Know

According to the Financial Conduct Authority1, more than 20 million people don’t have any pension savings, and they face a bleak future in the sunset years. As per the Financial Lives survey of about 13,000 consumers by the FCA, one of the most massive surveys of it’s kind, almost 30% of UK adults don’t have a private pension scheme and will have to depend on the state pension in their retirement. The full state pension as per the 2020/21 financial year is €175.20 per week, but it’s only accessible to retirees who have a complete record of the National Insurance Contributions2. Of particular concern is the group of those over the age of 50 who don’t have any pension fund and have few years left to set up one before they reach the state pension age, 66 years. Well, you don’t have to be part of this statistic. The solution is to start early since by contributing to your pension fund at 20 years; you’ll only have to pay 10%. Isn’t that easier? Well, if you haven’t started yet don’t worry. There is a myriad of pension scheme options to choose from, and you can get one that will suit your needs best. There’s the private pensions, SIPPs, and the state pension which is one of the cornerstones that the government has put in place as an approach to retirement. So, how does the state pension work? What’s it about? How much can you receive from it? Here’s a comprehensive guide to help you navigate through the world of state pension schemes.
What’s the State Pension

The State Pension Scheme Explained

The state pension plan is a weekly payment from the state that you get when you reach the required state age. The amount you’ll receive is based on the amount of time you’ve been paying into it, and they form of private pension scheme you have.

The first state pension plan was launched in 1908, and it came at a time of a tranche of social reforms. From then it’s been re-evaluated, and generation after generation has been getting some state pension. Today, in the 2020/21 financial year, the basic state pension amount that a pensioner can receive is €175.20 every week.

Who’s Eligible for the State Pension Scheme?

Let’s get down to business:

Well, for one to be considered eligible for the state pension plan, you have to ensure that you make the National Insurance Contributions regularly. You are required by law, to have a minimum of ten years of contributions. For you to get the full state pension amount, you typically need to have 35 years ‘worth of pension contributions.

Sometimes, however, and due to unavoidable circumstances like unemployment or financially-draining illnesses, you might not have sufficient qualifying years. If this is the case, then you can opt to make voluntary contributions whenever you can.

Now:

If you don’t know how much eligible form you can use the state pension calculator to figure out your National Insurance Contribution Record. You have to answer several simple questions to see the amount you’d receive when you claim it and how you can increase it.

You might also want to consider checking your state pension forecast since it’s a vital part of retirement planning and will assist figure out the amount you stand to get from the government.

Your state pension scheme eligibility can be higher if you’re a man and was born before 6th April 1951. If you’re a woman, you’re supposed to have been born before 6th April 1953 – that was the set age when the new state pension rules were drawn.

How Much is the State Pension?

Well, the full state pension amount is currently (2020/21) set at €175.20 each week, totalling to about €9,120 per annum. The state pension amount is typically adjusted every year, depending on the ‘triple lock’ guarantee. That means that every April, it rises by the greater of September’s inflation rate, income growth of 2.5%.

You see:

Not everyone, however, is eligible for the maximum state pension amount. You’re required to have ten years of contributions to get the bare minimum. For the full amount, you’re required to have about 35 years worth of National Insurance Contributions.

So, that said, what is deemed as a qualifying year?

Qualifying Year Determinants

These factors determine the ten year’s 35 years ‘worth of contributions:

  • You’re employed and receive over €183 each week, in the 2020/21 financial year, from one boss and are contributing the National Insurance Contributions
  • You have a job and get between €120 and €183 every week (2020/21) from one boss and are considered to have contributed the National Insurance Contributions
  • You’re self-employed and contributing to the class 2 National Insurance Contributions
  • You willingly but voluntarily make National Insurance Contributions
  • You get National Insurance Credits

A few years back, there was the ‘two-tier State Pension.’ With that you’d receive the full state pension amount if you had 30 years ‘worth of National Insurance Contributions and then, based on your level of National Insurance Contributions, you were qualified for some ‘supplementary State Pension.’

Nevertheless, the current financial system is ‘single-tiered’, and your state pension amount is calculated through your National Insurance Contributions (or obtained credits) and the amount of time you’ve been paying into them.

According to the Department of Works and Pensions, the average state pension was about €158 every week in the 2019/20 financial year. The standard payout for men was around €160, whereas for women it was €152.

Widow’s Pension Explained

Your state pension eligibility can be affected if you’re widowed. You might be able to get some additional payment if your civil partner or spouse had attained the state pension age, 66 years, but didn’t get to claim it.

Now:

The extra amount might consist of the additional state pension or sometimes a safeguarded payment. Nevertheless, if you decided to remarry or enter into a new civil partnership before reaching the state pension age, you won’t get the additional amount.

What’s the State Pension After A Divorce Settlement?

If you have dissolved your firm with your civil partner or just had a divorce settlement, you state pension eligibility might be impacted, too. You’ll receive a ‘pension sharing order’ s a part of the financial settlement with your ex-spouse. In that case, the court can decide that you have to share your additional state pension or secured payment with your ex.

When the court’s ruling states that, your civil partner or spouse’s state pension will be decreased and you’ll receive the extra amount as an additional payment on top of the state pension amount.

How Much is the State Pension for A Married Couple?

Well, if you’re married, working out the state pension eligibility is now a straightforward procedure. A few years back, a married woman could claim a pension at 60% of her spouse’s basic state pension record, depending on their National Insurance Contributions.

Simply put:

In the new financial system, however, the choice of claiming pension savings based on your spouse’s contributions has been discarded. You will, now only claim your own state pension amount, depending on your pension contributions. That means that you can get a maximum of €350.40 every week or €18,200.80 per annum between you two in the 2020/21 financial term.

When Can You Claim Your State Pension?

The state pension age has been going through a myriad of changes since 2010, and it’s set to be adjusted even further. Today, both men and women can claim their state pension amount from 66 years of age. Nonetheless, according to experts, that age is set to rise to 67 years by 2028. And rise again to 68 between 2037 and 2039.

Currently, you can’t get your state pension automatically, and you’ll have to claim it when you reach the set age. You’ll get a letter four months before attaining 66 years of age.

The letter will offer you instructions on how you can claim it. Thanks to technological advancements, you can now do that online, through your phone or the state pension claim form, and mailing it to your resident pension center.

Can You Entirely Depend on the State Pension?

If you qualify for the full state pension amount, you’ll have a yearly income of over €9,000. According to research by the Pensions and Lifetime Savings Association in 2020, over €20,000 is required each year for a normal retirement for an individual. That amount allows for a high level of financial security, and flexibility, inclusive of some luxuries.

Therefore, for you to attain that income, €20,000 upon retirement, you need to ensure that you have some extra income provisions on top of your state pension.

We’re not through yet,

If you’re not sure of what your pension income might be in future, you can use the pension calculator and get a clear picture of this. An excellent pension calculator will enable you to set your retirement goals and figure out what extra savings you’ll have to make to enjoy your time in retirement.

How to Boost Your State Pension

There are several strategies you can apply to ensure you have a significant pension income in future. These include:

Paying Enough National Insurance Contributions

If there are times in your working years where you haven’t been in the job industry or contributed into your National Insurance for several reasons, you don’t have to sweat backloads. You can be eligible to claim National Insurance credits, which can assist you in filling in the gaps in your contributions record.

Monitoring Your National Insurance Credits

The National Insurance Credits are essential to those who aren’t working, those with a low income or those who want to claim benefits. You can also claim credits if you haven’t been toiling due to illnesses, have been looking after your kids, or clearing jury service.

You might also need to claim the credits if you’ve worked overseas or are self-employed during your professional career. If that’s the case, you’ll be able to make some voluntary contributions. Those are referred to as class 3 contributions and can assist you in the making up for the years you might have missed.

According to the law, however, one can only make voluntary contributions for the gaps within the past six years.

Delaying in Drawing Out Your State Pension

Even though you’ll access your state pension when you reach 66, you’re not required to claim it immediately. You can delay the claim and boost your income – for a sizeable amount when you need it. If you opt to extend your time in employment, you can adjourn claiming your state pension by some years, and that can help you safeguard some extra cash for when you opt to retire.

Currently, for every nine weeks that you delay withdrawing your state pension, it’ll increase in value by about 1%. Therefore, if you were to defer claiming it by a year, or so, you’d have an increment of about 6%. The extra amount will also increase every year in line with the inflation rates.

Purchasing ‘Additional’ Pension Years

If you have the funds to do so, you might want to consider using a substantial lump sum amount to purchase a significant state pension than you’d have been eligible to. Nevertheless, that should only be done when your forecast or personal calculations indicate that you’ll be short of the 35 qualifying years.

If you’re lucky to see your great-grandkids, the additional payment can be worth millions throughout your life. You can only add for missing contributions in the recent ten-year period.

Claiming Child Benefits to Safeguard Your State Pension

If you have kids, it’s essential to claim Child Benefits even though you earn over €50,000, as that can help build up the credits required. After you make acclaim for the Child Benefits, those accountable for the High-Income Child Benefit Charge (HICBC)6 can opt-out of getting disbursements of Child Benefits if they want to avoid any tax charges, but still, receive the National Insurance Credits.

Got Questions? Check These First

What’s the State Pension Amount?

How Can You Find Out About Your State Pension?

When Can You Claim Your State Pension?

What’s the Basic State Pension Amount in 2020?

In conclusion

It all adds up to this:

The State Pension is a monthly payment from the government which can be received by people who have reached the state pension age. It’s worth understanding how much you will get and when, so you know what to expect in retirement.

How Much Can You Release?

Use the FREE Calculator Below

Equity Release Calculator

Value Of Your Home?

(Drag the Slider)

0

We Hate Spam as Much as You. 100% Secure.

How Much Can You Release?

Most people are using Equity Release as a means of retaining the use of their house while also obtaining a lump sum or a steady stream of income. Get matched with an expert and check your eligibility for equity release options.
Use our free equity release calculator & see how much you can release today.

Your Journey to Financial Success Starts Here