The State Pension Explained
Everyone wants to be able to look forward to a comfortable retirement. But with people living longer and with the cost of living rising, can you be sure that the basic state pension will provide you with enough money to maintain a decent standard of living in your old age?
How the State Pension BeganIt all started with the Pensions Act in 1908. The first state pension was introduced for anyone aged 70 or over, with the intention of reducing poverty for those in the final years of their lives. Today, the age after which you can claim a pension has been lowered (65 for men, 60 for women), and there are over 12 million pensioners living in the UK today.
More importantly, people are living longer. When the first state pension was introduced, a pensioner was only expected to draw their pension for a period of, on average, seven years. Now, a pension will continue to be paid for an average of 24 years. This has placed a considerable burden on the State, which has been encouraging people to make their own preparations for their retirement to help supplement the income they can expect to receive from the basic state pension.
The Basic State PensionToday, the weekly state pension is £107.45 for an individual, and £171.85 for a couple. Putting that into perspective, a monthly income of just over £465 is less than half of what a basic rate taxpayer earning the minimum wage would earn in a month.
The Importance of National Insurance ContributionsWhether you are entitled to receive a full basic state pension will depend on the national insurance contributions you made over the course of your working life. For example, in order to qualify for a full state pension, a man who worked for 49 years of his life will be required to have made national insurance contributions for 44 full years. A woman with a work life span of 44 years would need to have made national insurance contributions for 39 of those years.
However, as of 2010, the number of years’ worth of contributions needed to obtain a full state pension will be reduced to 30, for both men and women.
When Can I Claim My State Pension?If you are a woman, you can claim your state pension as soon as you reach the age of 60. If you are a man you can claim at 65, although the age at which you can claim your pension is expected to rise in the near future, to offset the fact that people are living longer.
However, if you plan to carry on working you can still claim your pension – although depending on the level of income you receive from your job you may have to pay tax on your pension.