Following on from my previous article summarising the rules on State Pension Age, in this article I detail the amount that pensioners can expect to receive.
Current Position – Basic State Pension
Currently (as at July 2014) the maximum single State Pension is £113.10 per week for those, whether married or not, who have sufficient qualifying years of National Insurance Contributions. If you are married or in a civil partnership and both have sufficient qualifying years, you will each receive the full amount, so £226.20 per week in total.
The number of qualifying years you need depends on your age and gender and for those not yet at State Pension age will be anywhere between 30 and 44.
- Men born before 6 April 1945 usually need 44 qualifying years.
- Women born before 6 April 1950 usually need 39 qualifying years.
- Men born on or after 6 April 1945 need 30 qualifying years.
- Women born on or after 6 April 1950 need 30 qualifying years.
If you have at least 25% of the number of qualifying years you will receive some State Pension, pro-rated in line with the number of qualifying years achieved. It is also possible in most cases to top up your National Insurance Contributions to increase the number of qualifying years achieved. Advice should be sought from a qualified Financial Planner as to whether this is an appropriate course of action.
For those that are married or in a civil partnership who do not have sufficient qualifying years to qualify for State Pension in their own right, it may be possible to claim up to £67.80 per week relying on the spouse or civil partner’s National Insurance Contributions record.
Will I Receive Additional State Pension?
This will depend on whether or not you have contracted out of SERPS (the State Earnings Related Pension Scheme) or S2P (the State Second Pension) in the past and your earnings. The amount that you may receive will depend on:
Your years of National Insurance Contributions
- Your earnings
- The number of years that you contracted out, if applicable.
The maximum additional State Pension payable for 2014/15 is £167.40 per week and is payable on top of basic State Pension.
Will My State Pension Increase Each Year?
Yes current Government policy includes a ‘triple lock’ guarantee whereby basic State Pension will increase each April in line with the highest of:
- Growth in average earnings
- Increase in prices
- 2.5 per cent
Any additional State Pension payable will be increased in line with the increase in prices.
What is Pension Credit?
Pension Credit is a means tested benefit to provide a guaranteed minimum level of pension income for those who are over the State Pension age for women and that have a low income.
It consists of two parts:
- Guarantee Credit, and
- Savings Credit
The Guaranteed Credit element is payable to those who are of the minimum age whose income is less than £148.35 for a single person or £226.50 for a couple (2014/15). Where a qualifying claim is made, Pension Credit would top up income to those amounts e.g. £148.35 for a single person.
To qualify for the Savings Credit element you must have income of between £120.35 and £190.35 per week for a single person, or between £192 and £278.20 per week for a married couple. The maximum Savings Credit is £16.80 per week for a single person and £20.70 per week for a couple.
What is the Over 80’s Pension?
This is a pension payable to those aged 80 or over who have little or no State Pension entitlement. The maximum payable is £67.80 per week (2014/15). If some State Pension is received but is below £67.80 per week, the Over 80’s Pension will top up to that level.
What is State Pension Top Up?
This is a new scheme which will run for 18 months from October 2015 and will enable those who are already receiving their State Pension, or those who will reach State Pension age before 6th April 2016, to pay a new class of voluntary National Insurance Contributions (Class 3A) in order to boost their additional State Pension by a maximum of £25 per week. Whether this is advisable will depend on personal circumstances and should be carefully considered.
From April 2016 a new Flat Rate Pension will be introduced. This will apply to anyone reaching State Pension age on or after 6th April 2016.
The new ‘single tier’ pension will replace the current system of basic and additional pensions, providing just one flat rate for all those with the required number of qualifying years, which will be 35 years for all. A minimum of 10 qualifying years will be needed to qualify for some State Pension; those with between 10 and 34 qualifying years will receive a proportion of the pension.
The amount of the Flat Rate Pension will be declared in Autumn 2015, however, it is proposed that it will be at least the same as current Pension Credit guarantee which is £148.40 per week. Entitlement to the flat rate pension will be individual with no special rules for those that are married or in a civil partnership.
For those with National Insurance Contributions made before April 2016, the amount of total State Pension you receive may be more than the Flat Rate Pension if your accrued entitlement is more than the starting rate, essentially the additional entitlement will be protected but no further entitlement will be accrued.
The Guaranteed element of Pension Credit will continue to provide a safety net for those with low incomes.
Understanding what level of State Pension you will receive may have a significant impact on your retirement planning. Even for those will additional resources, the provision of State Pension will still play a part and should be included in reviewing your retirement budget.
Effective retirement planning should start as early as possible so that all resources can be assessed and used efficiently to achieve your retirement goals, whether that is to retire at a certain age, to travel the world or simply to achieve a minimum level of income that is sustainable.
At Fiducia our experienced team of Financial Planners are happy to discuss your retirement goals and assist with putting an effective strategy in place. Please do contact us to discuss your requirements.
Sarah Travers LL.B. (Hons) Dip PFS