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State Pension (United Kingdom)

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The State Pension is an existing welfare benefit that forms part of the United Kingdom Government's pension arrangements. Benefits vary depending on the age of the individual and their contribution record. Currently anyone can make a claim, provided they have a minimum number of qualifying years of contributions.

Background

Basic State Pension

The basic State Pension (alongside the Graduated Retirement Benefit, the State Earnings-Related Pension Scheme, and the State Second Pension) is a benefit payable to men born before 6 April 1951, and to women born before 6 April 1953. The maximum amount payable is £169.50 a week (April 2024 - April 2025).[1]

New State Pension

The new State Pension is a benefit payable to men born on or after 6 April 1951, and to women born on or after 6 April 1953. The maximum amount payable is £221.20 a week (April 2024 - April 2025).[2]

Contribution record

The State Pension is a 'contribution-based' welfare benefit, and depends on an individual's National Insurance (NI) contribution history. To qualify for a full pension (amounts given above), an individual would require:

  • basic State Pension: 30 qualifying years (years in which NI contributions were paid) for contributors claiming between 6 April 2010 and 5 April 2016;[3][4][5]
  • new State Pension: 35 qualifying years (years in which NI contributions were paid) for contributors claiming from 6 April 2016.[6]

In years where fewer than 52 weeks' NI were paid, the year is disregarded. With fewer qualifying years smaller, pro-rata, pension is paid. People who were contracted-out paid lower NI contributions will receive a lower state pension.

Pre-1975 system

Before the National Insurance system changed in 1975, the contribution rules were somewhat different. To receive the benefit, a person needed to have a minimum of 3 qualifying years (156 weeks) of flat-rate contributions (2 years, prior to July 1948), and have maintained a yearly average of 50 (weeks’) contributions from either the age of 16, or since 5 July 1948, or the date they began insurable employment).[7]

Pension uprating

See also: Frozen state pension

The benefits paid under basic State Pension are increased in April each year to pensioners living in the UK and in certain overseas countries which have a social security agreement with the UK that includes British pension uprating,[8] in line with the CPI. All state pensions for these pensions are protected by the "triple lock" guarantee introduced by the 2010–2015 coalition government, meaning that the benefit rises each year by either the annual price inflation, or average earnings growth, or a guaranteed 2.5% minimum, whichever is the greatest.

Coming into effect each April, the uprating is based on the previous September's CPI inflation, along with the annual increase in weekly earnings averaged over May to July.[9] The triple Lock has been replaced for one year for the 2022 increase with a double lock with the average earnings element removed. This was because the government believed there was a statistical anomaly due to Covid having depressed the 2020 earnings figures.[10]

In November 2023, The Trussell Trust calculated that a single adult in the UK in 2023 needs at least £29,500 a year to have an acceptable standard of living, up from £25,000 in 2022.[11]

Pensioners living in other countries without a current agreement (which includes most Commonwealth countries) have their pensions frozen at the rate in effect on the date when they left the UK, or on the date when they applied for a pension, whichever is later.[12]

State Pension age

Before the Pensions Act 1995, the state pension age had been 60 for women, and 65 for men. The Act changed this so that the women's pension age would be made equal with men, but that the transition should only be phased in from 2010 to 2020.[13] In 2006, a cross party Parliamentary report again recommended equalisation of ages on the basis of equal treatment of both sexes. It also recommended a rise in the state pension age for both men and women to 68 between 2024 and 2046. The rationale for the age rise was that people would be living longer in the future.[14] This was put into effect by the Pensions Act 2007.

However, when the Conservative and Liberal Democrat coalition took power, the Pensions Act 2011 accelerated the rise of the state pension age to 66 for both men and women by 6 October 2020.[15] Under the Pensions Act 2014, the coalition government again accelerated the rise in the state pension age to 67 by 6 April 2028.[16]

In May 2019, a challenge in the High Court failed to reverse decisions to accelerate the equalisation of the pension ages on the ground that not enough notice was given.[17] The Conservative Party in its 2019 manifesto stated that it would not change the rules, while the Labour Party committed itself to compensating women who were unfairly affected by the changes in the pension age.[18] An appeal to the Court of Appeal against the decision of the High Court was dismissed on 15 September 2020.[19] On 31 March 2021 the Supreme Court refused the women's application for permission to appeal against the decision of the Court of Appeal.[20]

The current ages for the state pension in law are as follows:

Women born between 1950 and 1953

date of birth from to date of reaching SPA date of birth from to date of reaching SPA
6 Jan 1952 5 Feb 1952 6 Nov 2013
6 Feb 1952 5 Mar 1952 6 Jan 2014
5 April 1950 age 60 6 Mar 1952 5 Apr 1952 6 Mar 2014
6 Apr 1950 5 May 1950 6 May 2010 6 Apr 1952 5 May 1952 6 May 2014
6 May 1950 5 Jun 1950 6 Jul 2010 6 May 1952 5 Jun 1952 6 Jul 2014
6 Jun 1950 5 Jul 1950 6 Sep 2010 6 Jun 1952 5 Jul 1952 6 Sep 2014
6 Jul 1950 5 Aug 1950 6 Nov 2010 6 Jul 1952 5 Aug 1952 6 Nov 2014
6 Aug 1950 5 Sep 1950 6 Jan 2011 6 Aug 1952 5 Sep 1952 6 Jan 2015
6 Sep 1950 5 Oct 1950 6 Mar 2011 6 Sep 1952 5 Oct 1952 6 Mar 2015
6 Oct 1950 5 Nov 1950 6 May 2011 6 Oct 1952 5 Nov 1952 6 May 2015
6 Nov 1950 5 Dec 1950 6 Jul 2011 6 Nov 1952 5 Dec 1952 6 Jul 2015
6 Dec 1950 5 Jan 1951 6 Sep 2011 6 Dec 1952 5 Jan 1953 6 Sep 2015
6 Jan 1951 5 Feb 1951 6 Nov 2011 6 Jan 1953 5 Feb 1953 6 Nov 2015
6 Feb 1951 5 Mar 1951 6 Jan 2012 6 Feb 1953 5 Mar 1953 6 Jan 2016
6 Mar 1951 5 Apr 1951 6 Mar 2012 6 Mar 1953 5 Apr 1953 6 Mar 2016
6 Apr 1951 5 May 1951 6 May 2012 6 Apr 1953 5 May 1953 6 Jul 2016
6 May 1951 5 Jun 1951 6 Jul 2012 6 May 1953 5 Jun 1953 6 Nov 2016
6 Jun 1951 5 Jul 1951 6 Sep 2012 6 Jun 1953 5 Jul 1953 6 Mar 2017
6 Jul 1951 5 Aug 1951 6 Nov 2012 6 Jul 1953 5 Aug 1953 6 Jul 2017
6 Aug 1951 5 Sep 1951 6 Jan 2013 6 Aug 1953 5 Sep 1953 6 Nov 2017
6 Sep 1951 5 Oct 1951 6 Mar 2013 6 Sep 1953 5 Oct 1953 6 Mar 2018
6 Oct 1951 5 Nov 1951 6 May 2013 6 Oct 1953 5 Nov 1953 6 Jul 2018
6 Nov 1951 5 Dec 1951 6 Jul 2013 6 Nov 1953 5 Dec 1953 6 Nov 2018
6 Dec 1951 5 Jan 1952 6 Sep 2013

Men and women born between 1953 and 1960

date of birth from to date of reaching SPA
6 Dec 1953 5 Jan 1954 6 Mar 2019
6 Jan 1954 5 Feb 1954 6 May 2019
6 Feb 1954 5 Mar 1954 6 Jul 2019
6 Mar 1954 5 Apr 1954 6 Sep 2019
6 Apr 1954 5 May 1954 6 Nov 2019
6 May 1954 5 Jun 1954 6 Jan 2020
6 Jun 1954 5 Jul 1954 6 Mar 2020
6 Jul 1954 5 Aug 1954 6 May 2020
6 Aug 1954 5 Sep 1954 6 Jul 2020
6 Sep 1954 5 Oct 1954 6 Sep 2020
6 Oct 1954 5 Apr 1960 66 years

Men and women born between 1960 and 1978

date of birth from to date of reaching SPA date of birth from to proposed SPA
6 Apr 1960 5 May 1960 66 years 1 month 6 Apr 1977 5 May 1977 6 May 2044
6 May 1960 5 Jun 1960 66 years 2 months 6 May 1977 5 Jun 1977 6 Jul 2044
6 Jun 1960 5 Jul 1960 66 years 3 months 6 Jun 1977 5 Jul 1977 6 Sep 2044
6 Jul 1960 5 Aug 1960 66 years 4 months 6 Jul 1977 5 Aug 1977 6 Nov 2044
6 Aug 1960 5 Sep 1960 66 years 5 months 6 Aug 1977 5 Sep 1977 6 Jan 2045
6 Sep 1960 5 Oct 1960 66 years 6 months 6 Sep 1977 5 Oct 1977 6 Mar 2045
6 Oct 1960 5 Nov 1960 66 years 7 months 6 Oct 1977 5 Nov 1977 6 May 2045
6 Nov 1960 5 Dec 1960 66 years 8 months 6 Nov 1977 5 Dec 1977 6 Jul 2045
6 Dec 1960 5 Jan 1961 66 years 9 months 6 Dec 1977 5 Jan 1978 6 Sep 2045
6 Jan 1961 5 Feb 1961 66 years 10 months 6 Jan 1978 5 Feb 1978 6 Nov 2045
6 Feb 1961 5 Mar 1961 66 years 11 months 6 Feb 1978 5 Mar 1978 6 Jan 2046
6 Mar 1961 5 Apr 1977 67 years 6 Mar 1978 5 Apr 1978 68 years

Deferral

It is possible to defer claiming a State Pension at SPA.[21]

For individuals who reached SPA before 6 April 2016, deferred pensions are increased by 1% for every 5 weeks that the pension is not claimed (approximately 10.4% per year). Alternatively pensioners who have deferred their pension can claim a lump sum and an unenhanced pension. The lump sum is the amount of pension payments foregone plus interest at 2% per year over the Bank of England base rate.

For individuals who reach SPA on or after 6 April 2016, deferred pensions are increased by 1% for every 9 weeks that the pension is not claimed (approximately 5.8% per year).

Calculations

The basic State Pension is based on the National Insurance record of the individual. Each year that National Insurance was paid is called a qualifying year. For 2023–2024 to be a qualifying year you need to earn at least £6396 if you are an employee, or £6725 if you are self-employed, and have paid (or been credited with) National Insurance contributions based on these earnings.

The amount of the basic State Pension received is calculated by multiplying the full rate by the number of qualifying years and dividing by the number of years needed for the full rate.

Men born before 6 April 1945 needed 44 qualifying years for a full basic State Pension, and women born before 6 April 1950 needed 39 years; to get any State Pension, an individual needed 25 per cent of the qualifying years required for a full pension.

From 6 April 2010 until 5 April 2016, men born after 5 April 1945 and women born after 5 April 1950 needed 30 qualifying years for a full Basic State Pension, with a single qualifying year required to get any State Pension.

Since 6 April 2016, 35 qualifying years are needed to receive the full new state pension.[a] State Pension amounts can be reduced if the pensioner was in a contracted-out works pension scheme.

Individuals with less than a full record of qualifying years, may elect to pay voluntary National Insurance contributions, in order to boost their record for pension purposes.[22]

People in certain circumstances, such as caring for a severely disabled person for more than 20 hours a week or claiming unemployment or sickness benefits, can claim National Insurance credits.[23]

NI contributions paid between April 1961 and April 1975 result in an entitlement to a small Graduated Retirement pension.[b][24]

NI contributions paid between April 1978 and April 2002 result in an entitlement to an additional pension from the State Earnings Related Pension Scheme, although this will be very small[clarification needed] if the individual was "contracted out" of this arrangement. Since April 2002 NI contributions have earned an additional State Second Pension.

Married couples

Before April 2016, a wife or husband could claim extra basic State Pension based on the National Insurance contributions paid by his or her husband or wife (this extra is called a Category B pension).

If a woman has a Category A basic State Pension of less than 60 per cent of the full basic State Pension, then when she reaches her State Pension Age, she will have her basic State Pension topped-up to 60 per cent of her husband's Category A basic State Pension, once her husband reaches pension age.

Men, born after 5 April 1945, are able to claim a Category B pension based on their wives' contribution record. Similarly, civil partners who reach State Pension Age on or after 6 April 2010 are able to claim a Category B pension on the same basis.

No provision has been made for married partners to claim a reduced pension under the New State Pension, as it is intended people will have longer working lives and personal contribution records to claim against.

Pension top-ups

Married women with young children and carers can claim credits of National Insurance contributions.[25]

Pensioners with low incomes, or without enough qualifying years can claim Pension Credit.[26]

An 'age addition' of 25p a week is paid to people over 80.

Future flat-rate state pensions

Pensions Act 2007

A new approach was introduced following the findings of the all-party Pension Commission in 2006 and the white paper Security in retirement: towards a new pension system[27] published in May 2006. The key provisions were:[28]

  1. Reduction of the qualifying years for a full basic State Pension from 44 years for men and 39 years for women to 30 years for both.
  2. The basic State Pension's yearly increase is determined by a rule known as the “triple lock”, it being the greatest of:
    1. the growth in national average earnings;
    2. the growth in retail prices as measured by the Consumer Price Index;
    3. 2.5 per cent.
  3. The contribution conditions for basic State Pension were changed so that it is easier for everyone to build up some entitlement.
  4. Replacing Home Responsibility Protection (HRP) with a new system of weekly credits for parents and carers so that they can build up some entitlement to the Additional State Pension.
  5. Raising the State Pension age for both women and men from 65 to 68 in three stages between 2024 and 2046.
  6. End of the option to contract out of the Additional State Pension through money-purchase private pensions.

Pensions Act 2014

The government originally proposed that in April 2017 the basic State Pension and Second State Pension should both be replaced by a single, flat-rate pension. A green paper was issued in April 2011,[29] followed by a White Paper in January 2013.[30] Rights already earned to a Second State Pension would not be lost. In the 2013 budget it was announced that introduction of the single tier pension would be brought forward by one year to 6 April 2016.[31]

The new "single-tier" State Pension would be worth £144 a week (in 2012-13 terms). Provided they have 35 qualifying years, individuals would actually receive £144 a week, plus a "protected amount" if they have already earned a second State pension greater than £37 a week (which is the difference between the current basic State Pension and the proposed flat-rate pension), and minus a "rebate-derived amount" if they have paid smaller National Insurance contributions because they were "contracted out" of the Second State Pension Scheme (or its predecessor, the State Earnings Related Pension Scheme).[30]

The new, single-tier State Pension would eventually remove the need for Pension Credit. It is also proposed that various rules regarding marriage, divorce and bereavement would be phased out. This would mean that Category B pensions (see above) would be replaced by Category A pensions for everyone, although any rights to a Category B pension that existed at the implementation date would be preserved.[29]

These changes are now law, they were enacted by the Pensions Act 2014 which received royal assent on 14 May 2014.[32]

See also

Notes

  1. ^ This applies to people whose pension age falls after this date, not before it.
  2. ^ Entitlement was based on the amount of contributions paid, which are used to buy ‘units’. Each unit bought is valued at 17½p in 2024/25; the maximum possible benefit is £15.10

References

  1. ^ "The basic State Pension". GOV.UK. Retrieved 10 April 2024.
  2. ^ "The new State Pension". GOV.UK. Retrieved 10 April 2024.
  3. ^ "Eligibility". Retrieved 14 November 2018.
  4. ^ 44 qualifying years (for men), or 39 years (for women) - prior to 6 April 2010 "National Insurance Conditions". February 2010. Retrieved 20 August 2020.
  5. ^ "Eligibility". Retrieved 22 July 2022.
  6. ^ "Your National Insurance record and your State Pension". Retrieved 14 November 2018.
  7. ^ National Insurance Act 1965, schedule 2, accessed 14 April 2024
  8. ^ Social Security Agreement Countries Archived 2010-09-11 at the Wayback Machine, dwp.gov.uk/
  9. ^ "Djuna Thurley, Rod McInnes" (PDF). House of Commons Library. UK Parliament. 4 February 2021. CBP-07812. Retrieved 15 July 2023.
  10. ^ "Triple Lock shifts to Double Lock in 2022". Chase de Vere. 12 November 2021. Retrieved 15 July 2023.
  11. ^ Este, Jonathan (10 November 2023). "How much income is needed to live well in the UK in 2023? At least £29,500 – much more than many households bring in". The Conversation. Retrieved 12 November 2023.
  12. ^ "Frozen overseas pensions". UK Parliament. UK Parliament Briefing Paper. House of Commons Library. 11 April 2019.{{cite journal}}: CS1 maint: others (link) − links to PDF of Briefing Paper Number CBP-01457, Frozen overseas pensions by Djuna Thurley and Rod McInnes
  13. ^ Pensions Act 1995 s 126 and Sch 4
  14. ^ Security in retirement: towards a new pension system (2006) Cm 6841, para 3.32
  15. ^ Pensions Act 2011 s 1
  16. ^ Pensions Act 2014 s 26
  17. ^ R (Delve) v Secretary of State for Work And Pensions [2019] EWHC 2552
  18. ^ 'General election 2019: What is Labour offering to Waspi women?' (25 November 2019) BBC, "Labour's Angela Rayner told BBC News: "The government failed the women who were born in the 1950s. They stole their pension."... Conservative minister Nicky Morgan told the BBC "there isn't the money available" to compensate the Waspi women."
  19. ^ R (Delve) v Secretary of State for Work And Pensions [2020] EWCA Civ 1199
  20. ^ "Supreme Court denies Backto60 state pension appeal". 31 March 2021. Retrieved 10 December 2022.
  21. ^ "State Pension Deferral - Your Guide" (PDF). Archived (PDF) from the original on 3 April 2012. Retrieved 1 April 2012.
  22. ^ "Application to pay voluntary National Insurance contributions" (PDF). Archived (PDF) from the original on 5 April 2011. Retrieved 25 March 2011.
  23. ^ Understanding the basic State Pension http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/Basicstatepension/DG_10014671 Archived 2011-10-30 at the Wayback Machine
  24. ^ Graduated Retirement Benefit (GRB) explained, SunLife
  25. ^ Home Responsibilities Protection
  26. ^ About Pension Credit, Department of Work and Pensions, retrieved 25 April 2011
  27. ^ Security in retirement: towards a new pension system (PDF), archived from the original (PDF) on 16 December 2010, retrieved 25 April 2011
  28. ^ The Pensions Act 2007, Department for Work and Pensions, archived from the original on 16 May 2011, retrieved 25 April 2011
  29. ^ a b "A State Pension for the 21st Century". dwp.gov.uk. Archived from the original on 8 April 2011.
  30. ^ a b "The single-tier pension: a simple foundation for saving" (PDF). Archived (PDF) from the original on 23 January 2013. Retrieved 15 January 2013.
  31. ^ "2010 to 2015 government policy: State Pension simplification". Archived from the original on 18 August 2013. Retrieved 18 May 2013.
  32. ^ "Pensions Act - Parliamentary Bills - UK Parliament". Archived from the original on 28 March 2015. Retrieved 9 March 2015.
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