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THE EDUCATION SECTION October 2011 State Pensions Updated April 2013 ____________________________ Key points Lloyd George introduced the first ‘State’ pension in 1908. It was a ‘means tested’ benefit of between 10p and 25p a week (or 2 shillings and a Crown in ‘old’ money), from age 70. In 1925 a contributory State scheme was introduced and the pension was 50p a week (10 shillings - 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) o paid from age 65 for men and 60 for women The State Pension Age is increasing. What is the state pension? The basic state pension is a government-administered scheme, funded by National Insurance (NI) contributions, to give those who have reached the State Pension Age (SPA) a guaranteed weekly income - currently just over £110 a week . The basic state pension is NOT means tested & is NOT dependent on former salary or how much a person has in savings. Instead, the amount received depends on the amount of NI contributions paid & for how many years those NI contributions have been paid. How is it funded? The State scheme is funded on a ‘pay as you go’ basis. This means that there is no underlying fund from which retirement benefits can be taken. Instead, the NI contributions of the current working population are used to pay the State pensions of those who have reached SPA. When do I get the State Pension? The situation now! When do I get the State Pension? The situation now! Currently, the SPA for men is 65 and, until 6 April 2010, it was 60 for women. However, the SPA for women is now in the process of being increased, and by November 2018 it will be 65 for both men AND women. In addition, the current law also provides for the following FURTHER increases to the SPA - o an increase from 65 to 66 between 2018 & 2020 o an increase from 66 to 67 between 2026 & 2028 o an increase from 67 to 68 between 2044 & 2046 What the situation might be soon! The Government is constantly announcing new proposals to amend the SPA. Click here for up to date information about the proposals. Confused? Don’t be! This useful SPA calculator will let you know when you can expect to receive your State Pension based on 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? To gain a qualifying year, you need to earn a set minimum during a tax year (6 th April to 5 th April) and pay the required NI. For 2013-14, this is £5,668 for both employees & the self-employed. In past years, the amount was, of course, lower, but it has always been at a similar figure in relation to average salaries, so only those on very low wages could have missed out. So if you were working full time, even on the minimum wage, or even just a few days a week throughout the year, it is likely you have earned a qualifying year. Don't have enough qualifying years? You may still be entitled to a PARTIAL state pension but it depends on when you hit retirement age and how many qualifying years you have. If you have at least one qualifying year, you will get 1/30 th of the full amount for each qualifying year. Therefore, if you have 18 qualifying years you will get 18/30 th ’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: o Full individual basic state pension: £110.15 per week If you are a woman who has not qualified for the basic state pension, but your husband is already claiming, there is a special basic couples pension you could get once both of you reach retirement age. If both partners qualify for the basic pension in their own right and their total individual pensions are more than what they would get as a couple, they get that larger figure. o Couples 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 website Does 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: o growth in average earnings o growth in prices (using the previous September’s CPI figure) o 2.5% 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 site SERPS and the State Second Pension (S2P) This additional State Pension has gone under different names in the past. It has also been known as the State Graduated Pension and the State Earnings-Related Pension Scheme (SERPS). Until you reach State Pension age your SERPS and S2P will be revalued each year in line with the growth in 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: o employed and earning over £5,668 (from any one job) o looking after children under 12 years old and claiming Child Benefit o caring for a sick or disabled person for more than 20 hours a week and claiming Carer's Credit o a registered foster carer and claiming Carer's Credit o receiving certain other benefits due to illness or disability Changes to contracted out pensions from 2012 The rules for contracting out of S2P changed in April 2012. The changes mean that contracting out is no longer possible through: o a money-purchase (defined-contribution) occupational pension scheme o a personal pension or a stakeholder pension If you were contracted out through one of these schemes on 6 April 2012, you would have automatically been brought back into S2P. How do I claim the State Pension? The Pension Service should automatically send you a State Pension Information Booklet and invite you to claim four months before you reach State Pension age. The Pension Service State Pension claim line can be contacted on 0800 731 7898. ____________________________ As always, p lease do not hesitate to contact us if you would like further details or information.