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What is the basic State Pension?

The basic State Pension is a flat rate pension, funded on a pay-as-you-go basis. Current National Insurance contributions pay the pensions for existing pensioners rather than funding future pensions.

The rate of basic State Pension for a single person with an adequate National Insurance contribution record is set each year through the budget. Current and historical levels of basic State Pension can be found on the Aries Pension website. Basic state pension can be claimed from state Pension Age.

There are currently three categories of basic state pension available:

Category A - This is contributory and consists of two parts: the basic pension and an additional earnings related element. It is dependent on the claimant's National Insurance record.

Category B - This is also contributory and consists of basic and earnings related elements. However, it is payable by virtue of a spouse or civil partner's National Insurance record, not the claimant's.

Category D - This is non-contributory and is paid to some individuals over age 80, subject to certain conditions.

What is the State Pension age?

State Pension age is the earliest date from which State Pensions can be taken.
Currently, it is 65 for men. Before 6 April 2010 it was 60 for women - after this date it increases until it is equalised at 65 for both men and women.

The Government's Spending Review 2010 announced that State Pension age will be:

  • Equalised at 65 for men and women from November 2018, and then;
  • Increased to 66 by April 2020.

Proposed changes for women

Date of birth Date State Pension age reached
6 April 1953 to 5 May 1953 06-Jul-16
6 May 1953 to 5 June 1953 06-Nov-16
6 June 1953 to 5 July 1953 06-Mar-17
6 July 1953 to 5 August 1953 06-Jul-17
6 August 1953 to 5 September 1953 06-Nov-17
6 September 1953 to 5 October 1953 06-Mar-18
6 October 1953 to 5 November 1953 06-Jul-18
6 November 1953 to 5 December 1953 06-Nov-18

Proposed changes for men and women

Date of birth Date State Pension age reached
6 December 1953 to 5 January 1954 06-Mar-19
6 January 1954 to 5 February 1954 06-Jul-19
6 February 1954 to 5 March 1954 06-Nov-19
6 March 1954 to 5 April 1954 06-Mar-20
6 April 1954 to 5 April 1960 66th birthday

The previous plans for State Pension age increases were as follows:

  • It would increase gradually for women from 6 April 2010 until it was equalised at 65 for both men and women from 6 April 2020.
  • Further increases were then to be made for both men and women. The increases were to be phased in over three periods, raising the State Pension age to:
    • 66 by 6 April 2026;
    • 67 by 6 April 2036;and
    • 68 by 6 April 2046.

The Government is currently considering the timetable for the future increases to State Pension age from 66 to 68.

The Pension Service have State Pension age calculator on the Directgov website which calculates the date from which an individual can claim their State Pension(s).

Can State Pension be deferred?

State Pension does not have to be taken at State Pension age. It can be deferred indefinitely and taken in the form of either an increased income or a lump sum. This applies to basic State Pension, State Second Pension, State Earnings Related Pension and Graduated Retirement Benefit.

Increased income

If the claim for State Pension is deferred for at least five weeks, the original pension due at state pension age will be increased by 1% for every five weeks deferred - equivalent to 10.4% for each full year deferred. For example, someone reaching State Pension age with a pension entitlement of 100 a week and choosing to defer their State Pension by five years would earn an extra pension of 52 a week for the rest of their life.

Lump sum

As an alternative to taking a higher pension after the period of deferment, the individual also has the option of taking a lump sum. To qualify for this, the pension must be deferred for at least a year. The lump sum is based on the amount of weekly State Pension the individual would receive plus interest at 2% above the Bank of England base rate. When the State Pension is eventually claimed, it will be at the same rate as it would have been had it not been deferred.

Do State Pensions increase while in payment?

Once in payment, basic State Pension is increased each April in line with the movement in the retail prices index over the 12 months ending in the previous September.
However, the new government have stated that they will "restore the earnings link for the basic State Pension from April 2011, with a 'triple guarantee' that pensions are raised by the higher of earnings, prices or 2.5%".
The State Second Pension and State Earnings Related Pension increase in payment in line with price inflation and this will continue, even after the basic State Pension starts to increase in line with national average earnings.
Graduated Retirement Benefit increases each year according to the social security benefits up-rating order published by the DWP.
Individuals who move overseas may also benefit from increases in State Pensions in payment, however, this depends on which country the individual is living in.

How is State Pension taxed?

Although State Pension is a taxable benefit, tax is never deducted from it. Instead, the amount paid is added to any other income and if the total is greater than the individual's personal tax allowance, the tax is deducted from the other income.

Lump sum payments received as a result of deferring State Pension beyond State Pension age are taxed at the highest rate that would be applicable had the lump sum not been paid. For example, if basic rate tax of 20% was the highest rate an individual paid before they received their lump sum, the entire lump sum would be taxed at 20%, even if it would otherwise have taken them into the higher rate tax bracket. Also, the lump sum is not added to income for the calculation of age allowance.

Can an individual find out how much State Pension they can expect at State Pension age?

A State Pension forecast can be requested from The State Pension Forecasting team either by telephone, online, or using form BR19.
The forecast covers any entitlement to basic State Pension, State Second Pension, State Earnings Related Pension and Graduated Retirement Benefit. It will tell the individual what they may get at State Pension age (in today's prices) based on their National Insurance contributions or credits to date, as well as what they may get based on their expected future National Insurance contributions or credits.
If less than the full basic State Pension is expected to be paid, the forecast letter will mention that Class 3 National Insurance contributions can be paid to boost the pension.

How does an individual claim their State Pension?

In order to receive their State Pension, an individual must claim it. Any claim will cover the basic State Pension and any entitlement to State Second Pension, State Earnings Related Pension and Graduated Retirement Benefit.
A claim form BR1 is automatically sent to eligible individuals about four months before they reach State Pension age.
Alternatively, a claim can be made to the Pension Service by telephone, details of which can be found on the Directgov website.

Can State Pensions be shared on divorce?

State Second Pension and State Earnings Related Pension Scheme entitlement can be shared on divorce or dissolution of a civil partnership. This is done by an internal transfer. However, these benefits should only be shared as a last resort - that is, where an equitable result cannot be achieved within their non-State Pension benefits.
It is not possible to share basic State Pension or Graduated Retirement Benefit.
Although basic State Pension cannot be shared, an individual who gets divorced or has their civil partnership dissolved before they reach State Pension age may be able to use their ex-spouse's or former civil partner's National Insurance record to boost their own basic State Pension, provided they have not remarried or formed a new civil partnership before that time. Only tax years up to the year in which the marriage or civil partnership ended can be included for this purpose.
If an individual gets divorced or has their civil partnership dissolved after reaching State Pension age, they may also be able use the ex-spouse's or former civil partner's National Insurance record to boost their basic State Pension, even if they remarry or form a new civil partnership.

What National Insurance contributions record is required to qualify for basic State Pension?

An individual's entitlement to basic State Pension is based on their National Insurance contributions and credits. The amount of basic State Pension an individual receives is dependent on the number of qualifying years they have.
The qualifying conditions for basic State Pension vary depending on whether the individual:

  • Reached State Pension age before 6 April 2010;
  • Reaches State Pension age on or after 6 April 2010;
  • Benefited from Home Responsibilities Protection;
  • Is age 80 or over.

It is also possible to receive basic State Pension based on the contribution record of a spouse or civil partner - this is known as a Category B pension. Separate conditions apply to entitlement to a Category B pension.

Individuals reaching State Pension age before 6 April 2010

To qualify for any basic State Pension, an individual reaching State Pension age before 6 April 2010 had to have:

  • At least one qualifying year where they paid or were treated as having paid Class 1, 2 or 3 National Insurance contributions - it wasn't possible to get basic State Pension at State Pension age based on credits alone; and
  • Enough qualifying years to equal at least 25% of the years of their working life.

Working life was calculated from the start of the tax year in which the individual reached age 16 to the end of the tax year before the one in which State Pension was reached. This worked out as:

  • 49 years for men, or woman born on or after 6 October 1954;
  • 44 years for women born before 6 October 1950; and
  • Between 44 and 49 years for women born between 6 October 1950 and 5 October 1954 (due to the changing State Pension age for women between these ages).

To qualify for a full basic State Pension, an individual had to have paid, or been credited with, full National Insurance contributions for 90% of their working life.

The pension was reduced proportionately where the individual did not have such a record.

Individuals reaching State Pension age on or after 6 April 2010

In order to get some basic State Pension an individual reaching State Pension age on or after 6 April 2010 only needs to have one qualifying year - this can be based on National Insurance contributions paid, treated as paid or credited.
The number of qualifying years or credits required to receive the full basic State Pension has been reduced to 30. This applies to both men and women reaching State Pension age on or after 6 April 2010.
Individuals with fewer than 30 years will qualify for a basic State Pension of 1/30th of the full rate of basic State Pension for each complete qualifying year or credit they have built up.

Home Responsibilities Protection

Home Responsibilities Protection (HRP) was a special arrangement (available from 1978 to 2010) which catered for those not working, or those who didn't earn enough in a tax year to have it count as a qualifying year, because they had caring responsibilities or were bringing up children.
HRP reduced the number of qualifying years required to qualify for the full basic State Pension. The number of qualifying years required, however, could not be reduced below 20.
HRP was available to those who, for the whole tax year, were:

  • Receiving Child Benefit for a child under age 16;
  • Caring (for at least 35 hours per week) for someone who received Attendance Allowance, Constant Attendance Allowance or the highest or middle rate care component of Disability Living Allowance;
  • Receiving Income Support because they looked after a sick or disabled person;
  • Registered as a foster carer (for tax years after 6 April 2003).

HRP has been replaced by a new system of weekly National Insurance credits. For individuals reaching State Pension age on or after 6 April 2010, each complete year (up to a maximum of 22) of HRP awarded under the old rules will be converted into a qualifying year for the basic State Pension.

Age 80 or over

An individual with little or no entitlement to basic State Pension based on their National Insurance record may be entitled to a Category D basic State Pension. This pension is non-contributory and is payable where an individual:

  • Is aged 80 or over; and
  • At the time of claim, is normally resident in Great Britain (England, Scotland or Wales) and has lived in Great Britain for a total of 10 years or more in any continuous period of 20 years after age 60, (Northern Ireland residents have separate arrangements); and
  • Has either no entitlement to any other State Pension, or receives State Pension which is less than the Category D pension amount.

What are National Insurance credits, for the purpose of the basic State Pension?

In some circumstances, an individual may be credited with qualifying years for the purposes of the basic State Pension, even though no National Insurance contributions are being paid.
National Insurance credits may be given for a variety of reasons, such as:

  • Individuals claiming unemployment, maternity and sickness benefits;
  • Men in the tax year in which they reach 60 and the four following years. These will be phased out from April 2010 in line with the increase in state pension age for women, so men born after 5 October 1954 won't get these credits;
  • Individuals getting Working Tax Credit.

Credits are automatically given for the tax year in which an individual's 16th birthday falls and the following two tax years. Before 1975, these credits were only given to individuals under age 18 who were in education or undergoing an apprenticeship or training.
Since 6 April 2010, carers and individuals looking after young children have also been able to build up qualifying years through new weekly credits if they are:

  • Receiving Child Benefit for children under age 12;
  • Approved foster parents or carers; or
  • Caring (for at least 20 hours per week) for someone who receives Attendance Allowance, Constant Attendance Allowance or the highest or middle rate care component of Disability Living Allowance.

These new credits replace Home Responsibilities Protection. For those reaching State Pension age on or after 6 April 2010, each complete year (up to a maximum of 22) of Home Responsibilities Protection built up will be converted into a qualifying year for the purposes of the basic State Pension.

Can an individual use their spouse or civil partner's National Insurance record to improve their basic State Pension?

If an individual is not entitled to the full basic State Pension based on their own National Insurance record, they may be able to use their spouse or civil partner's National Insurance record to improve their entitlement, subject to certain conditions.
This can be a complex area, as there are various different rules on how or when individuals can use their spouse or civil partner's National Insurance record to boost their basic State Pension - most notably the different rules depending on whether the spouse or civil partner has died or is still alive and the differences in the rules applying to women and men/civil partners (although some of these differences were removed from 6 April 2010).
The following gives a general picture of the rules.

Spouse/civil partner still alive

A spouse or civil partner may qualify for a pension based on their partner's National Insurance contributions. This is known as a Category B pension.
The full rate of Category B pension is approximately 60% of the full Category A basic State Pension. The amount of Category B pension payable will be reduced accordingly if their spouse or civil partner did not qualify for the full basic State Pension.
If an individual qualifies for both a Category A and Category B pension, the amount paid may be restricted. The Category A basic pension can be increased by the amount of Category B pension, subject to a maximum of the full Category B basic State Pension.
The qualifying criteria for a Category B pension differs for women and men/civil partners.

  • A married woman may qualify for a Category B pension if both she and her husband have reached State Pension age;
  • A married man or a civil partner may qualify for a Category B pension if they:
    1. have reached State Pension age; and
    2. have a wife or civil partner born on or after 6 April 1950 who has reached State Pension age.

In practice, this means that a married man or female civil partner could be entitled to a Category B pension from as early as 6 May 2010, however, a male civil partner could not have this entitlement before 6 April 2015.

Spouse/civil partner has died

A widow, widower or surviving civil partner who is under State Pension age when their late spouse or civil partner died may, subject to certain conditions, qualify for a Category B pension at State Pension age based on their late spouse or civil partner's National Insurance record.
A widow, widower or civil partner who is over State Pension age when their spouse or civil partner dies and who doesn't qualify for the full basic State Pension amount in their own right, can use their deceased partner's National Insurance record to increase their basic State Pension.
The amount of basic State Pension that an individual can receive, based on their own National Insurance contribution record and any based on their late spouse or civil partner's record, is limited to the full rate of basic State Pension for a single person.

Any reference to legislation and tax is based on Personal investment Partnership Ltd's understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax relief's to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments