Basingstoke Observer‘THE State Pension will look after me’ is something that I hear a lot from people when talking about retirement but when I ask them how they think the state pension works or even how much it is, I am typically given some blank looks.
It is one of the things I talk about when providing financial education, because we all know it is there, but not really how it works. So what is the State Pension, how much is it and how does it work?
The State Pension is the pension that you will get from your state pension age that is paid to you from the government based on your national contribution record. One of the myths that needs busting is that there is a ‘pot’ of money ring fenced for you based on how much national insurance you have paid, the more you have paid in, the more you will get. That isn’t correct, the level of state pension will depend on how long you have paid National Insurance contributions (not the amount you have paid in) and the payments you are currently making to your NI is effectively going to pay the people who are currently retired. When you retire, the ‘young un’s’ paying NI contributions at that point will be paying your pension. With the state pension, it isn’t the amount of money you have paid, it is the length of time you have paid it that is important.
The state pension age now is 66, so you cannot claim your pension before the date of your 66th birthday however the age is rising and is likely to continue to as we all live longer. The government will get in contact with you prior to your state pension age to tell you the amount of your pension and if you are eligible to qualify for a full state pension, the amount now is £185.15 per week and is usually paid on a 4 week basis. You will also get your state pension in addition to any other pensions you have.
To qualify for a full state pension, you will need at least 35 years of National Insurance contributions and to get any state pension you will need to have at least 10 years contributions.
If you have missed years because you didn’t work or maybe you were living overseas, you can make voluntary contributions to your National Insurance to ‘top up’ your years. Currently you can make up all years you have missed but from April 2023, this will be reduced to a maximum of 6 years, so if you need to make those years up, you better get cracking before April 2023.
You can easily get a state pension forecast, which will tell you what State Pension you are due and get confirmation of your expected retirement date by visiting www.gov.uk/check-state-pension.
By Kevin White
Kevin White is a Director and Financial Adviser at local company Fortem Financial Management.
