The State Pension

I often read with interest people’s comments about the State Pension and it is clear that the majority do not understand how the state system works.

The state pensionWhilst you are working, as well as income tax, you pay national insurance (NI). The money that the government receive from your NI payments is not stored up to pay you your pension later in life, but is used to pay various state benefits now, one of which is the state pension for those that are currently retired.

Your NI payments currently provide you with a credit towards your state pension, although the level of pension receivable, your pension age and eligibility is not guaranteed. What I mean by this is that legislation changes, which means there could be changes to what is available. As we have seen the state retirement age has been increased and will continue to increase in the future and the number of qualifying years for maximum state pension has increased from 30 to 35.

So when people say that they have paid for their state pension and demand to receive it – this is just not true. When you reach state retirement age, if you are eligible to receive a payment it will be the workers of that day that will be providing the money for you to receive a state pension income.

What are the rules?

To qualify for a state pension currently you need to have at least 10 qualifying years,
a qualifying year is one during in which:

• you were working and paid National Insurance contributions
• you were getting National Insurance credits
• you were paying voluntary National Insurance contributions

You will need 35 qualifying years to get the full State Pension.

How much will you get?

The current State Pension is £159.99 per week (this will rise to £164.35 per week in the 2018/19 tax year)

You’ll get a proportion of the new State Pension if you have between 10 and 35 qualifying years

Example:

You have 20 qualifying years on your National Insurance record after 6 April 2016.
You divide £159.55 by 35 and then multiply by 20.
Your new State Pension will be about £91.17 per week

What is the Triple Lock?

The triple lock allows your state pension to keep growing at a rate that allows you to purchase the same amount of goods as last year. It is a guarantee to increase the state pension every year by whichever is the highest of:
• the average percentage growth in wages (in Great Britain)
• the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI)
• or 2.5%
Whether the triple lock increase will continue long term is uncertain, there are calls to change it because the cost is so great.
Whilst we all expect to receive a state pension the only way to guarantee that you will have a good level of income, in older age, is to take things into your own hands and save into some other form of pension be that an employers or a private pension. The younger you are the more important this will be.

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