It’s important to understand that not everyone in the UK is eligible to receive a state pension, and payouts can differ significantly from person to person, even for those who are eligible. 

Here’s a breakdown of how the state pension works, the concept of the triple lock, and when you can start claiming your pension.

What is the State Pension?

The State Pension is a qualifying benefit provided by the UK government. You can become eligible for the pension by accruing a specific number of National Insurance credits. You can earn these credits by working and paying taxes, being a caregiver, receiving certain benefits, serving on a jury or having parental leave.

Once you’ve earned enough credits, you can start receiving your state pension as soon as you reach the government’s official age, which is currently 66.

What is the Triple Lock?

The UK government has pledged to increase state pension payouts by at least 2.5% per year since 2010. If average prices or earnings rise by more than that rate, pensions will go up to match whichever measure rises the most. This mechanism is known as the “triple lock” and aims to ensure that pensioners do not become relatively poorer than working people due to rising prices on things like food and fuel.

While the earning element of the triple lock was suspended for 2022-2023, due to wages rising by 8.3%, (primarily due to people returning back into the workforce from furlough following the pandemic) the earning element will return for 2023-2024. The State Pension will now rise in line with September’s inflation rate (10.1%) in the 2023-2024 tax year.

Which State Pension Will You Get?

If you retired after April 6th, 2016, you’ll receive the new state pension. However, if you retired before April 6th, 2016, you’ll be receiving the basic state pension. The state pension age is currently set at 66. However, it is rising to 67 between 2026 and 2028, and is currently scheduled to increase to age 68 between 2044 and 2046.

The amount of your state pension depends on how long you’ve been paying National Insurance. The full new state pension is currently £179.60 per week, but you need to have paid National Insurance for 35 years to qualify for it. You’ll need a minimum of 10 qualifying years to get any state pension, which would give you around £51 per week. You receive approximately £5 per week for every year you’ve paid National Insurance. If you want to know exactly how much state pension you’re entitled to, contact the Department for Works and Pensions on 0345 300 0168 or visit the GOV.UK website.

The full basic state pension is £137.60 per week. You need to have paid National Insurance for 30 years to qualify for it. You may also be eligible for the Additional State Pension on top of your basic state pension. You can find out more about this on the GOV.UK website.

How Much Have Pensions Risen?

If you qualify for a full new State Pension, you will receive £203.85 a week, up from £185.15. If you have reached the State Pension age before April 2016, and are on the older basic State Pension, will now receive £156.20 – up from £141.85. You can check your own State Pension forecast on the government’s website.

How Much National Insurance Do You Pay?

If you work for someone as an employee, you may need to pay Class 1 National Insurance (NICs), depending on how much you earn. If you earn between £242.01 and £967 per week, you’ll pay 13.25% in NICs. If you earn over £967 per week, you will pay 3.25% in NICs.

If you’re unemployed, a carer, or earn less than £155 a week, you may be eligible for National Insurance credits. National Insurance credits are a way for people who cannot work or earn less than the minimum threshold to continue to build up their entitlement to the State Pension and other benefits. They essentially replace the National Insurance contributions that a person would’ve paid if they were working and earning enough to qualify for them.

If you’re unemployed and looking for work, you may be eligible for credits for the time you spend actively seeking employment. Similarly, if you’re unable to work due to caring responsibilities for a child or a disabled person, you may also be eligible for credits. Additionally, if you’re on certain benefits such as the Carer’s Allowance, you may automatically receive National Insurance credits.

It’s important to check whether you’re eligible for National Insurance credits if you’re not currently working or earning below the threshold, as they can help to ensure that you do not miss out on your entitlements to the State Pension and other benefits in the future. You can find out more information and apply for credits through the government’s website or by contacting the National Insurance helpline.

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*This content of this blog does not constitute financial advice, and when investing your capital is at risk