Entitlement to State pension is based on an individual’s National Insurance (NI) record. How much you get depends upon how long you have paid NI for, your individual earnings and whether you have ever been ‘contracted out’ of the additional state pension scheme through a private pension scheme.
The State pension is not a fixed figure which everyone gets - while this is the intention for the future, it is not the reality for those retiring today. Recent figures released by the Department for Work & Pensions (DWP) revealed that only 44% of retirees are currently receiving the full new state pension of £168.60 per week*.
The only way to find out what you have built up so far is to get a forecast from the DWP. If it will be less than the full amount there are often steps that can be taken to increase it.
In 2016 the State pension changed. People with a pre- and post- April 2016 NI record will have two sets of State pension built up. Their NI contributions paid before April 2016 give an entitlement of whichever system, old or new, gives the higher amount of pension (assuming the new system had been in place up to April 2016) and post 2016 contributions under the new rules.
30 years’ contributions were needed to get a full Basic State pension and at least 1 year to get any entitlement. In addition, an earnings-related top up could also be earned, with different versions over the years known as the State Second Pension (S2P), the State Earnings Related Pension Scheme (SERPS) and the Graduated pension. The total pension payable could be much more than £168.60 per week, for a high earner in the State top up scheme for 30 plus years.
Those who were contracted out of the top up scheme through a private pension arrangement for some or all of their working life receive a reduced level of the top-up pension (or none at all). The private pension used for contracting out is intended to provide a replacement for what the top-up scheme would have otherwise provided.
Most people working and paying NI usually have a mixture of some years contracted in to the top up scheme and some years contracted out. There could also be years when they did not pay NI but may claim NI credits (see section below - Free NI Credits).
The facility to contract out ended completely in April 2016 when the new state pension came in. The new state pension provides a single tier of benefits with no top-up pension.
In 2016 the State pension changed. All those with a pre- April 2016 NI record had their total state pension entitlement worked out as at April 2016 based on the old and new systems (called their ‘starting amount’) and their starting amount was the higher of the two calculations. Anyone whose entitlement was higher than the full new state pension was given a ‘protected payment’ to cover the part of their starting amount which was above the full new State Pension. This is paid on top of the full new State Pension.
Anyone with periods of contracting out had a deduction made from the new State scheme (as they would have under the old system) which is why they could have less than £168.60 per week, even after 30 years of NI payments. The pension you get from your workplace or personal pension scheme for the periods you were contracted out, should include an amount that, in most cases, will be the equivalent of the additional State Pension you would have got if you had not been contracted out. This is your Contracted Out Pension Equivalent (COPE) amount. An estimate of your COPE will be shown if you use the online Check your State Pension service or if you request a State Pension Statement through the post. The COPE figure is only an estimate as the government doesn’t know the exact amount your scheme will pay you as a result of contracting-out as it will depend on the actual rules of your private scheme, and possibly any investment choices you may make.
State pension entitlement built up purely after April 2016 requires 35 years’ NI contributions to get the full state pension £168.60 per week. A minimum of 10 years’ NI payments or credits is needed to get anything.
Getting a personal State pension forecast is important to work out what you will get and whether you have a shortfall. Anyone with a ‘starting amount’ that is equal to or greater than the full new state pension can’t increase this by paying voluntary NI. Anyone with a starting amount that is less than the full new state pension may be able to increase this by paying voluntary NI.
If there are gaps in NI, voluntary contributions may be able to be paid to buy extra years. Each year’s credit or contribution buys 1/35th of the full state pension.
The new State pension increases in payment each year, by the higher of CPI inflation, National Average Earnings growth and 2.5%, so each year’s contribution is worth more income every year.
The self-employed may pay class 2 contributions of £3 per week for 2019/20 – slightly less for earlier tax years. Not paying them will mean a lower state pension.
Carers are entitled to free NI credits while caring for a child under 12 (17 if disabled). If the carer is not the parent of the child, credits may be backdated to 2011. Those caring for adults for at least 20 hours per week can also claim credits.
Carers receiving carer’s allowance or income support, or those receiving job seeker’s allowance automatically get credits. For more on this see our Gender Pension Gap Guide.
As each person’s NI record is personal to them, so is their State pension entitlement. The complexities of the old and new scheme mean that everyone needs their own individual forecast to get an accurate prediction; https://www.gov.uk/check-state-pension.
Director of Public Policy
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