We simplify all those essential financial decisions
THE EDUCATION SECTION October 2011State PensionsUpdated April 2013____________________________Key points•LloydGeorgeintroducedthefirst‘State’pensionin1908.Itwasa‘meanstested’benefitofbetween10pand25p a week (or 2 shillings and a Crown in ‘old’ money), from age 70.•In1925acontributoryStateschemewasintroducedandthepensionwas50paweek(10shillings-otherwise known as 10 ‘bob’) from age 65. •Basic state pensions were formally introduced in 1948, following the Beveridge Report. The pension was -o£1.30 a week for a single person (£1/72d)o£2.10 for a married couple (£2/24d)opaid from age 65 for men and 60 for women•The State Pension Age is increasing. What is the state pension?Thebasicstatepensionisagovernment-administeredscheme,fundedbyNationalInsurance(NI)contributions,to givethosewhohavereachedtheStatePensionAge(SPA)aguaranteedweeklyincome-currentlyjustover£110 aweek.ThebasicstatepensionisNOTmeanstested&isNOTdependentonformersalaryorhowmuchaperson has in savings.Instead,theamountreceiveddependsontheamountofNIcontributionspaid&forhowmanyyearsthoseNI contributions have been paid.How is it funded?TheStateschemeisfundedona‘payasyougo’basis.Thismeansthatthereisnounderlyingfundfromwhich retirementbenefitscanbetaken.Instead,theNIcontributionsofthecurrentworkingpopulationareusedtopay the State pensions of those who have reached SPA.When do I get the State Pension? The situation now!WhendoIgettheStatePension?Thesituationnow!Currently,theSPAformenis65and,until6April2010,it was60forwomen.However,theSPAforwomenisnowintheprocessofbeingincreased,andbyNovember2018 itwillbe65forbothmenANDwomen.Inaddition,thecurrentlawalsoprovidesforthefollowingFURTHER increases to the SPA - oan increase from 65 to 66 between 2018 & 2020 oan increase from 66 to 67 between 2026 & 2028 oan increase from 67 to 68 between 2044 & 2046What the situation might be soon!TheGovernmentisconstantlyannouncingnewproposalstoamendtheSPA.Clickhereforuptodateinformation about the proposals.Confused? Don’tbe!ThisusefulSPAcalculatorwillletyouknowwhenyoucanexpecttoreceiveyourStatePensionbasedon the CURRENT rules.Who qualifies for the basic state pension?To get the FULL state pension you will need to have worked for most of your working life and paid NI contributions (or have been on qualifying benefits.)The amount you are entitled to is calculated by the number of NI qualifying years you have accumulated. Again, the qualification criteria changes with the year you were born. You will need 30 qualifying years to get the FULL basic pension.If you have a shortfall you will receive a letter from HM Revenue and Customs once a year to inform you of it. What is a qualifying year?Togainaqualifyingyear,youneedtoearnasetminimumduringataxyear(6thAprilto5thApril)andpaythe requiredNI.For2013-14,thisis£5,668forbothemployees&theself-employed.Inpastyears,theamountwas, ofcourse,lower,butithasalwaysbeenatasimilarfigureinrelationtoaveragesalaries,soonlythoseonverylow wages could have missed out. Soifyouwereworkingfulltime,evenontheminimumwage,orevenjustafewdaysaweekthroughouttheyear, it is likely you have earned a qualifying year.Don't have enough qualifying years?YoumaystillbeentitledtoaPARTIALstatepensionbutitdependsonwhenyouhitretirementageandhowmany qualifying years you have. Ifyouhaveatleastonequalifyingyear,youwillget1/30thofthefullamountforeachqualifyingyear.Therefore,if you have 18 qualifying years you will get 18/30th’s (60%) of the FULL State pension.How much will I get?There is a complicated maze surrounding the amount you get, but a brief summary is as follows:oFull individual basic state pension: £110.15 per weekIfyouareawomanwhohasnotqualifiedforthebasicstatepension,butyourhusbandisalreadyclaiming,there isaspecialbasiccouplespensionyoucouldgetoncebothofyoureachretirementage.Ifbothpartnersqualifyfor thebasicpensionintheirownrightandtheirtotalindividualpensionsaremorethanwhattheywouldgetasa couple, they get that larger figure.oCouples basic state pension: £176.15 per week Remember - the basic state pension is taxable and counts as taxable earnings.Can I get a forecast of my expected State Pension?Yes. Simply click here to go straight to the The Pension Service websiteDoes the Basic State Pension award increase every year?Yes. It rises every April. Until April 2011, the basic State Pension was increased in line with the growth in prices. From April 2011 the basic State Pension is protected by the government’s 'triple guarantee'. This means it will be increased every year by whichever of the following is the highest:ogrowth in average earningsogrowth in prices (using the previous September’s CPI figure)o2.5%This only applies to the basic State Pension. This does not apply to the additions to State Pension. The amount of basic State Pension you receive when you reach your State Pension age may be more than the amount shown in your forecast.What happens when I die?Your basic State Pension cannot be passed to someone else when you die. Though if you delay claiming your State Pension, your widow, widower or surviving civil partner may be entitled to some of the cash. If you have contributed towards the Second State Pension (S2P), your spouse or civil partner can inherit some of this. If you have no spouse or civil partner, any S2P you put off claiming becomes part of your estate. Find full details on the Gov website.A surviving partner may be entitled to a one-off bereavement payment or bereavement benefits for a year. Once again, more details are available from the Gov web siteSERPS and the State Second Pension (S2P)ThisadditionalStatePensionhasgoneunderdifferentnamesinthepast.IthasalsobeenknownastheState Graduated Pension and the State Earnings-Related Pension Scheme (SERPS).UntilyoureachStatePensionageyourSERPSandS2Pwillberevaluedeachyearinlinewiththegrowthin average earnings. Once you have reached State Pension age it will then normally increase in line with prices.Who gets the additional State Pension?You can build up additional State Pension if you are below State Pension age and you are:oemployed and earning over £5,668 (from any one job)olooking after children under 12 years old and claiming Child Benefitocaring for a sick or disabled person for more than 20 hours a week and claiming Carer's Creditoa registered foster carer and claiming Carer's Creditoreceiving certain other benefits due to illness or disabilityChanges to contracted out pensions from 2012TherulesforcontractingoutofS2PchangedinApril2012.Thechangesmeanthatcontractingoutisnolonger possible through:oa money-purchase (defined-contribution) occupational pension schemeoa personal pension or a stakeholder pensionIfyouwerecontractedoutthroughoneoftheseschemeson6April2012,youwouldhaveautomaticallybeen brought back into S2P.How do I claim the State Pension?ThePensionServiceshouldautomaticallysendyouaStatePensionInformationBookletandinviteyoutoclaim fourmonthsbeforeyoureachStatePensionage.ThePensionServiceStatePensionclaimlinecanbecontactedon 0800 731 7898.____________________________As always, please do not hesitate to contact us if you would like further details or information.