While the State Pension has been around for donkeys’ years, who receives it, at what age and the amount you could receive continues to change. Here, we give you the inside scoop on everything you need to know about the State Pension. Including how it could affect your plans for the future.
Is the State Pension enough to live on?
The State Pension could provide some but not all of your retirement income depending on the type of lifestyle you hope to achieve once your working life is behind you.
Yet a third of Brits1 admit that they still aren’t paying into a private or workplace pension. Meaning many could find themselves largely or fully reliant on the State Pension if they have no other provisions for their retirement years.
So, how much is the State Pension? And is it enough to live on?
For the 20/21 tax year, the full new State Pension is £175.20 per week. The equivalent of £9,110.40 a year2.
We asked the nation how much annual income they expect to need to live comfortably in retirement. Both 18-24-year olds and 35-44-year olds on average, estimated a modest £28,000 a year. Which the current full new State Pension would cover a third of.
25-34-year olds on the other hand, felt that a figure closer to £36,000 a year would give them a comfortable way of life throughout their retirement. With the current full new State Pension payment only covering a quarter of this, three-quarters of their annual income would need to come from other sources.
Under current rules the State Pension amount is guaranteed to increase. The triple lock system, introduced in 2012, means the State Pension will increase every year by whatever is the highest of inflation, average earnings or 2.5 per cent.
Will you qualify for the full amount of State Pension?
You might not qualify to receive the full amount of State Pension if you’ve not made enough National Insurance contributions by the time you reach your State Pension age.
In a nutshell, you’ll need at least 10 qualifying years on your National Insurance record to get any State Pension at all. These do not have to be 10 qualifying years in a row. To get the full new amount of State Pension, you’ll need 35 qualifying years on your record.
How much of a difference can missing years make? With only 10 qualifying years on your record you’ll receive around £6,500 less a year in State Pension payments (based on the 20/21 full State Pension amount) compared to someone who has the full 35 years.
Although it’s worth noting that if you work full-time, even on the minimum wage or just a few days a week throughout the year, you will likely be earning a qualifying year.
When asked whether they expected to receive the full amount of State Pension, a quarter of Brits said they didn’t know. While one in seven said they didn’t think they would. If you’re unsure whether you are on track to receive the full amount of State Pension, you can check your National Insurance record on the Gov.uk website. And there’s details on how you can fill any missing years too.
Another way to boost your State Pension would be to defer it beyond your State Pension age. Deferring your State Pension could increase the payments you get when you decide to claim it. Although any extra payments you get from deferring your claim could be taxed (if you go over your annual tax allowance).
What age will you receive the State Pension?
We asked the nation how old they think they will be when they receive the State Pension. Almost a quarter believe they will receive the State Pension at 70, 5 years older than the current age. While one in eight think they will be over 75 before they receive any State Pension payments.
In fact, the age you will be entitled to receive State Pension payments is rising. While it’s currently 65, by the end of 2020 the State Pension age will be 66.
And if you’re in your 30s and 40s now, it’s likely you won’t receive your State Pension until you are 68.
There are no current plans for the State Pension age to rise beyond 68. Although with 16.9 million people expected to reach State Pension age in 2042, the government are keeping a close eye on things. So, the State Pension age will continue to be reviewed3.
The State Pension: how it could affect your retirement
The reality is, the State Pension might only cover a portion of your retirement income, depending on your plans and goals for the future. And while some people may enjoy working until their State Pension age, others may want to slow down a little sooner.
When it comes to financially preparing for retirement, planning ahead is key. For most of us, that plan will include having one or more personal pensions. And making sure that these pensions are working as hard as they can so that your retirement income means you can do more of the things you want once it’s time to say adios to your job.
If you have lots of spare time and good financial knowledge, checking your pensions are in tip top working order can be a DIY job. Although for many, the simplest and most beneficial route is to get help from a financial adviser.
Check your State Pension age https://www.gov.uk/state-pension-age
Check how much State Pension you could receive https://www.gov.uk/check-state-pension
1Survey of 2,000 employed UK residents aged 18- 54, carried out in January 2020 by TLF PANEL