The State Pension – 5 things you should know
As advisors, we are often asked about the State Pension – for some, the bedrock of retirement provision which has been around in one guise or another for over 100 years. It has changed a lot during this time and this article aims to provide you with the main things you should know about the State Pension.
What is the State Pension?
In a nutshell, the State Pension is payable once you reach ‘State Pension Age’ which is currently 66 for both men and women and will rise to 67 from 2028. For those claiming this now, you need to have achieved 35 years of National Insurance contributions to receive the full amount which is paid within 5 weeks of reaching your State Pension age and will be paid directly into your bank account every 4 weeks until you pass away. You usually need at least 10 qualifying years on your National Insurance record to get any State Pension at all.
The amount you can receive
The full State Pension for the 2022/23 tax year is £185.15 per week. During the 2022 Autumn Statement, the Chancellor confirmed that the Triple Lock will be reinstated from April 2023. This means that moving forward, the State Pension will increase in line with whichever is the highest of three measures:
- inflation, as measured by the Consumer Prices Index (CPI)
- or average earnings
- or 2.5%.
The good news for the next tax year, 2023-2024, is that the State Pension will rise in line with September’s inflation rate: 10.1%, which is the largest ever increase to this benefit. This will increase the full State Pension to £203.85 per week or £10,600 per annum, a sum certainly worth having (especially if there are two of you). It does, however, remain to be seen whether the country can afford to continue with the Triple Lock in the future.
It’s not too late if you have gaps in your records
It isn’t always common knowledge that you can retrospectively fill missing gaps from your National Insurance records by making voluntary contributions directly with the DWP (Department of Work & Pensions). Looking ahead, the rules around this are set to change next tax year. Currently, you can fill any gaps going back to the 2006/07 tax year; however, from April 2023, you will only be able to backdate missing years of contributions to the 2016/2017 tax year. It is therefore worth checking – either via the Government Gateway Portal (which is free, and quick to register and access), or via a BR19 State Pension Forecast Form (just search BR19 form on the internet) which is sent directly to the DWP – to double check your National Insurance Contributions records. If you are missing years, you should certainly consider paying additional lump sums to fill the gaps. From April next year, for each year you fill it will pay you £5.82 per week or just over £300 for the year, which is index-linked for life. The rate of contribution to purchase a year will rise next year but currently it is £824 if paid as a lump sum.
What happens when you’re nearing State Pension age
The simple answer is that you will need to claim your State Pension; it isn’t paid to you automatically. You should receive a letter in the run-up to your nominated age and this will give you more information. By not claiming your State Pension, you will receive a 1% increase for every 9 weeks you defer (this works out at 5.8% per year) which will be added to the amount you receive when you finally claim it.
Final Fact…
… The day of the week on which you receive your State Pension is determined by the last 2 digits of your National Insurance Number. Probably not one to recount at dinner parties, but a little-known detail nonetheless.
For more information on State Pensions, we have a free short video series available to view here and there is more information on pensions as a whole on our Knowledge Hub Pensions page here.