STATE PENSIONS
When can you get your State Pension?
You can only get your State Pension when you have reached State Pension age and you claim it but you do not have to claim your State Pension as soon as you reach State Pension age. If you decide to carry on working this date it you can still claim your State Pension while you're working and your wages and the hours you work won't affect your state pension.
The date you reach State Pension age depends on when you were born. If you are a woman and you were born before 6 April 1950 your pension age is 60. If you are a man and you were born before 1959, your pension age is 65.
However if you were born on or after these dates your State Pension age is changing. There are two main changes to State Pension age. The first change is that the age at which women reach State Pension age will gradually increase to 65, the same as for men. This increase will happen in stages between 2010 and 2020. and will affect you if you are a woman born or or after 6 April 1950 but before 1959. The second change is that the State Pension age for both men and women will gradually increase from 65 to 68 between 2024 and 2046. This will affect everyone born on or after 6 April 1959 and will be implemented in stages.
How much are you entitled to?
The state pension is made up of two parts:
Basic State Pension - this is a taxable flt rate pension based on the number of qualifying years during a persons working life;
and:
Additional State Pension - this is made up of State Earning Related Pension (SERPS) and from 6 April 2002 State Second Pension (S2P) entitlements. S2P is a taxable pension paid in addition to the basic state pension based on a persons earnings or deemed earnings during their working life.
The basic State Pension is money you may be able to get when you reach State Pension age. The amount you receive depends on the number of qualifying years you have built up through contributions to your National Insurance contribution record.
To receiver a full basic state pension the current requirement is for a man to have 44 Qualifying Years and a woman to have 39 Qualifying Years. Basic state pension is paid at a reduced rate provided a person has at least 25% of the required number of Qualifying Years.
Paying National Insurance Contributions from your earnings builds up the amount of State Pension that you are entitled to. The amount of National Insurance you pay depends on how much you earn.
If you are in paid employment and you earn more than £105 a week you will pay National Insurance contributions for that week. This figure is called the primary threshold. These contributions will be deducted at source by your employer and in addition, for each week that you work and earn between £90 a week (the lower earnings limit for 2008-09) and the primary threshold of £105 a week, you will be treated as you have paid national insurance contributions even though you do not have any national insurance contributions deducted from your pay.
If you are self-employed you pay National Insurance contributions yourself and you will have to pay flat-rate Class 2 contributions however much you earn, unless you have been granted an exemption.
To build up a qualifying year of entitlement to a State Pension you need to have earnings of at least £4,680 a year on which you have paid National Insurance contributions, or are treated as having paid contributions. You may be able to pay voluntary Class 3 National Insurance contributions to cover previous years that you do not have enough contributions for, normally within six years of the end of the tax year the payment is for.
The basic State Pension changes each year and is linked to inflation. or illustration purposes the current full basic State Pension is £90.70 a week for a single person.
The State Earnings-Related Pension Scheme (SERPS)
You may be entitled to additional State Pension through the SERPS. The amount you get depends on how much you earned, and the amount of National Insurance contributions you paid (or are treated as having paid) before 2002. It also depends on whether you contracted out (or opted out) of SERPS so you could take out another pension such as a work pension or personal pension. If you contracted out of SERPS, this will reduce the amount of additional State Pension you will get. If you worked for yourself before 2002, and paid Class 2 National Insurance contributions during that time, this won't have counted towards SERPS.
The Government changed the SERPS scheme when it introduced the State Second Pension in 2002. Any additional State Pension you built up through SERPS before 2002 will be added to your State Second Pension.
The State Second Pension (S2P)
The Government introduced the State Second Pension in 2002. Under the current rules the calculation of S2P is very complex. S2P is accrued on an individuals earnings or deemed earnings depending on the amount of earnings falling within the three following bands:
Band 1 - Earnings up to and including the low earnings threshold which is currently £13,500 per annum.
Band 2 - Earnings above the low earnings threshold but not above the upper earnings threshold
which is currently £31,100 per annum.
Band 3 - Earnings above the upper earnings threshold but not above the upper earnings
limit which is currently £40,040 per annum.
The current three bands are to be reduced to two for tax years 2010/11 by merging bands 2 and 3.
The accrual for S2P will still be based on earnings (or deemed earnings factors) between the lower earnings threshold and the upper earnings threshold but using two bands instead of three:
Band 1 - Earnings up to and including the low earnings threshold (£13,500)
Band 2 - Earnings between the low earnings threshold (£13,500) and the upper earnings threshold
(£40,040)
The S2P accrual will be at the rate of 40% for Band 1 earnings and 10% for Band 2 earnings. The legislation provides for S2P to become a flat rate scheme in the future. The proposal is for Band 1 to be replaced by a weekly flat accrual amount for all individuals credited with S2P accrual in respect of each year. At this point the upper earnings threshold will be replaced by an "upper accrual point". Band 2 will continue for a time but is expected to be removed by 2030 leaving a single flat rate.
This website will be updated as the new proposals are implemented.
More information
To access the guide issued by The Pension Service click on the image below:
Getting advice on how the legislation effects you
If you are unsure regarding your position please contact us on 01299 879140.
