The State Pension and what it means for you

2021 sees the new State Pension hit its 5th birthday. Here’s a quick reminder of what changed in 2016 and what you might expect to get from yours.

By Alexander McQueen, Head of Savings & Retirement at Aviva

Your State Pension is the income paid to you after a certain age by the government. It was first introduced in the UK in 1908, when it paid up to five shillings a week once you’d reached 70. It’s one of the oldest State Pension systems in the world.

In the wake of the second world war a universal State Pension was introduced, funded by National Insurance contributions. This established the old State Pension ages of 60 for women and 65 for men, which more recently have gone up for everyone.

Over the years, and after a number of changes, it became apparent the system had become very complicated. So, in 2016 the government introduced the new State Pension. The new system aims for greater clarity and it’s hoped that over time it’ll build greater confidence in the public mind. 

The State Pension is still a core part of many people’s retirement plans. The most recent official data indicates that money from the state represents more than half (52%) of the average gross income of a recently retired single pensioner 1

So, to help plan for your own retirement, it’s critical to understand your State Pension eligibility, what you might get from it and when you’ll get it. The details that follow apply if you haven’t yet reached your State Pension age. If you’re already receiving your State Pension, your payments will continue as now. Of course, these are the current rules and they could change again in the future.

When will you get your State Pension?

In response to increasing life expectancy, the government has since 2010 been increasing the State Pension age — the age at which you become eligible to receive the State Pension.

That age is rising above 66 for both women and men and it’s currently set to reach 68 by 2039. Reviews are planned every five years with the next one scheduled for 2022.

The government website makes it easy to check your State Pension age.

You can’t access your State Pension before your State Pension age, but you can defer it to an older age. If you do this, your State Pension entitlement currently increases by the equivalent of 1% every 9 weeks you defer. That’s just under 5.8% for every year you wait.

How much State Pension will you get?

The amount of State Pension you’ll get depends on your National Insurance record through your adult life.

For the 2021/22 tax year, the maximum State Pension is £179.60 per week. People who’ll start to receive their State Pension in the coming years may, however, get more than this, having made National Insurance contributions both before and after the new system was introduced.

To qualify for a State Pension, you’ll usually need at least 10 qualifying years on your National Insurance record. If you have a 35-year National Insurance record, you may qualify for the maximum amount. You receive credits on your National Insurance record if you’re working; claiming Child Benefit for a child under the age of 12; receiving the Jobseeker’s allowance or the Employment & Support Allowance; or if you’re receiving a Carer’s Allowance. 

The State Pension currently increases each year by the highest of price inflation, wage inflation or 2.5%. This is referred to as the ‘triple lock’ and aims to maintain the relative value of the State Pension.

If your income is below £177.10 per week (for a single person) or £270.30 per week (for a couple) you may also be able to claim pension credit. This is an income-related benefit which could top up the amount you receive each week. You can find more information about pension credit on the government website.

How do you get the State Pension?

The State Pension isn’t automatically paid — you’ll need to claim it when you’re eligible. You’ll get a letter at least two months before you reach State Pension age telling you what you need to do. If you want to know more now, the government’s website has more detail on how to claim.

Will it be enough to live on?

For the tax year 2021/22, the maximum State Pension amounts to an annual income of £9,339. On its own, not a large amount, but you’ll need to consider it alongside your expected income from any other pensions you have — and income from any other sources — to see what your total income might be once you reach State Pension age. 

Many people might aspire to a retirement income of at least half their working income. Based on this, if you earn around £18,000 a year in work, the State Pension on its own may be enough to maintain your standard of living. But if you earn more, you’ll likely want to save more money for your retirement, in a workplace or personal pension, for example.

A recent study estimated that a ‘minimum’ target income for a single person in retirement could be about £10,200 each year; a ‘moderate’ income could be about £20,200; and a ‘comfortable’ income could be about £33,000 2. The figures for people retiring in London are higher, reflecting living costs. These are only indicative numbers and not a recommendation, but they could help you to plan. You can find out more about these ‘Retirement Living Standards’ here

How to find out more

With all these variables, the easiest way to understand how much State Pension you could be eligible to receive, and from what age, is to request a State Pension forecast. This free government service will do the calculations for you.

Also, the government brings all this information together in one place — as well as a lot more about pensions — on their Your Pension website. Take a look.