RETIRED Brits receive the state pension from the age of 66 – but many aren’t sure quite how much they get.
It all depends on how long you’ve worked and how much national insurance you’ve paid over your lifetime.
We explain everything you need to know about the state pension.
What is the state pension?
The state pension is a weekly payment from the government to men and women aged over 66.
The age when receipt begins is due to rise to 67 by 2028 and 68 between 2037 and 2039.
It’s intended to give anyone a retirement income to support them as they get older.
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You can spend the money as you wish, but it is treated as income so you may have to pay tax on it if all your earnings are above the annual personal tax allowance, currently £12,570.
How much is the state pension?
The full rate weekly state pension for this tax year is £179.60.
In April, this will increase to £185.15.
That means you could get £9,339 from the government to top-up your income during the year – or £9,627.80 from April.
However, the actual amount you receive will depend on your national insurance record.
New state pension v basic state pension
THERE are two types of state pension.
The new state pension is only paid to those who have reached state pension age since April 2016.
This applies to men born on or after 6 April 1951 and women born on or after 6 April 1953
Men born before April 6 1951 and women born before April 6 1953 only qualify for the basic state pension, which is lower at £137.60 per week currently.
To get the full basic state pension you need a total of 30 qualifying years of national insurance contributions or credits.
How do you qualify for the state pension?
The full state pension is only paid to those with a minimum 35 years national insurance contributions.
This is one of the taxes you pay while working and builds up your entitlement to the state pension.
There may be gaps if you were unemployed, lived abroad or took time off to care for children or relatives, which means you could get a lower amount.
But in some cases you can apply for credits to top up your retirement fund.
You need at least 10 years of qualifying national insurance contributions to get any state pension payments.
This doesn’t have to be from 10 years work in a row.
You can build up your eligibility as long as you have paid national insurance contributions for the equivalent of a decade during your working life.
It is possible to make voluntary national insurance contributions to top up your record, usually from the previous six years.
But savers are facing a four-year wait for much anticipated new technology that will let them view all their pension pots in one place online.
How is the state pension calculated?
Your national insurance record is just one factor in how much state pension you will receive.
It is also based on a government calculation called the triple lock that determines how much the state pension rises by each year.
Under the triple lock system, pension payments increase at the start of the tax year in April by the higher of average wages, the consumer prices index or 2.5% in the previous September.
You may also be able to top-up your payments using pension credit.
This gives extra money to pensioners on low incomes or if you are a carer, severely disabled or responsible for a child or young person.
Pension credit tops up your weekly income to £177.10 if you are single or to £270.30 if you have a partner.
But the state pension payments are set to rise by £290 in April amid rising inflation.
How else can I save for retirement?
The state pension doesn’t have to be your only form of income in retirement and most probably won’t stretch to maintain your standard of living.
Research by consumer watchdog Which? claims Brits will need a pension pot of £123,000 just for basics when they retire – and as much as £305,000 to be able to take holidays.
There are some ways you can save for your retirement beyond relying on the state pension.
Start your own pension
The state pension is just one type of retirement income.
A private pension is invested in the stockmarket to build a retirement pot for when you are older.
Everyone over the age off 22 should be enrolled onto a workplace pension scheme or you could set up your if you are self-employed.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it so it’s compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% (1% in tax relief) and employers contributing 3%.
- Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year on retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension. But they’re not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £179.60 a week and you’ll need 35 years of national insurance contributions to get this. You also need at least ten years’ worth of national insurance contributions to qualify.
- Basic state pension – If you reached the state pension age on or before April 2016, you’ll get the basic state pension. The full amount is £137.65 per week and you’ll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
Employers must contribute a minimum of 3% into a pension scheme and employers have to put in 5% from their salary.
You can contribute more to boost your pension pot and the earlier you start, the more you can benefit from stockmarket growth and smooth out any losses.
Make use of your savings
You can boost your pension pot with other forms of savings.
There is a £20,000 allowance that you can save tax-free either in a Cash or Stocks and Shares Isa each year.
Brits between the age of 18 and 39 can also open a Lifetime Isa and save up to £4,000 a year tax-free.
The money can be used to purchase your first home or you can access it after age 60 for your retirement.
The government will add a 25% bonus to your savings up to a maximum of £1,000 each year.
The bonus is only paid until you are 50 so the maximum you can get is £32,000.
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