Basic State Pension
Your National Insurance contributions (NICS) go towards building up a Basic State Pension. The State Pension age (SPA) is currently 65 for Men and between 60 and 65 for Women, depending on when the woman was born. However, the SPA for both men and women will be increased from 65 to 66 between November 2018 and October 2020, and then from 66 to 67 between April 2026 and April 2028. The Government is also now considering the timetable for future increases to the SPA from 67 with the likely outcome that the state pension age will be increased in future to take into account increases in longevity.
The amount of Basic State Pension you receive will be based on the amount of NICS you have paid or been credited with but if you reach SPA after 5 April 2010, you will need to have paid or been credited with NICS for 30 years to get the full Basic State Pension. If, however, you have paid or been credited with less than 30 years NICS, your Basic State Pension will be proportionately reduced. In some cases you may be credited with NICS if you are not working. Your local social security office can tell you if you are entitled to NIC credits or you can choose to pay voluntary contributions
Additional State Pension
The State Second Pension (S2P) replaced the State Earnings Related Pension Scheme (SERPS) from 6 April 2002, although both are commonly referred to as the additional state pension. It is paid on top of any Basic State Pension and is not dependent on eligibility for the Basic State Pension.
The amount you can receive is based on the amount of Class 1 National Insurance contributions paid (or treated as paid) on earnings between the lower earnings limit and the upper accrual point (or the upper earnings limit for tax years before 6 April 2009).
S2P is not available to the self-employed, the unemployed, people working part-time earning less than a lower earnings limit set by the government, students or people in full-time training. In addition, individuals don’t normally accrue any additional state pension for tax years in which they have been contracted-out, although if their earnings are less than the lower earnings threshold in a tax year, they will be eligible for a top-up amount of S2P for that year.
Pension Credit is a State benefit that provides additional income to pensioners on a means tested basis. It consists of two parts (people might be eligible for one or both elements): the guarantee credit, available from the current female State Pension Age, which tops up the weekly basic state pension to a prescribed level) and the savings credit, available from age 65, which has been introduced as a reward for those who make modest additional savings.
Pension Credit is a means-tested benefit, whereby amounts of capital are converted into ‘income’. Savings below £10,000 are disregarded. Every £500 or part thereof above £10,000 is counted as £1 ‘income’. All personal and occupational pension benefits, as well as lump sum investments (such as ISAs, Bonds, Unit Trusts) would be included, and it is virtually impossible to be sure of the fund values and resulting pension levels in advance.:
The weekly rates for the standard minimum guarantee of Guarantee Credit for 2018/19 are:
Contracting Out of the State Second Pension (S2P)
If you are an employee, you are automatically included in the State Second Pension unless you are a member of an employer’s occupational defined benefit (final salary) pension scheme that is contracted out.
From 6 April 2012, it is no longer possible for anyone to be contracted-out of a defined contribution (money purchase) scheme and the Government have also announced their intention to abolish the ability to contract-out of an employer’s occupational defined benefit scheme from 6 April 2016.
Single Tier State Pension from 2016
The Government has confirmed that it intends to introduce a new single tier state pension of £164.35 (2018/2019) a week (in today’s terms) from April 2016 for anyone reaching state pension age (SPA) on or after the implementation date who has paid or been credited with 35 years of NICs.
People with fewer than 35 qualifying years, but who satisfy a minimum qualifying period of between 7 and 10 years, will have their pension proportionately reduced.
Whilst, however, current pensioners and those reaching SPA prior to the implementation date will continue to receive their State Pension in line with existing rules – many features of the present state pension system will be abolished; most notably the Additional State Pension (and with it the ability to contract out via a defined benefit scheme), the savings credit element of the state pension credit and category B pensions, which currently enable a spouse without a full NI record in their own right to use their spouses NI record to improve their own state pension