Retirement:
The state pension

The state pension is made up of the basic state pension and the additional state pension. You can find out more by reading on�

The basic state pension

Whether you get a full basic state pension depends on the number of qualifying years you have. A qualifying year is one where you have paid, or been credited with, sufficient National Insurance contributions to count towards your entitlement to a state pension. If the contribution conditions are only partly met, the basic pension is paid pro rata.

For men, you need 44 qualifying years to entitle you to a full basic state pension. For women you need between 39 qualifying years (if your state retirement age is 60) and 44 qualifying years (if your state retirement age is 65). If you reach the required number of years contributions before your retirement age you still have to keep paying National Insurance contributions until retirement even though you do not get any additional pension benefit from the contributions.

The state pension age is currently age 65 for men and was originally age 60 for women. Women born before 6 April 1950 will receive their state pension from age 60 but women born after 6 April 1955 will not get a state pension until age 65. There are transitional provisions for women born between 6 April 1950 and 6 April 1955 who will receive their state pension between the ages of 60 and 65.

Married women who have insufficient National Insurance contributions themselves may be entitled to a basic state pension by virtue of their husband�s contributions. It should also be noted that on divorce where a spouse, usually the wife, was reliant on their husband�s contributions for a basic state pension it is possible to apply for the husband�s contribution history to enhance their own state pension after the divorce.

You can delay claiming your basic state pension for up to five years in which case you will get either a higher amount or a lump sum when it is paid.

The basic state pension is based on your National Insurance contributions whether you are employed or self employed.

Class 1 National Insurance contributions are paid by employees and count towards the entitlement to the state retirement pension.

Class 2 National Insurance contributions are paid by the self employed and count towards the entitlement to the state retirement pension.

Class 3 National Insurance contributions are voluntary contributions which can be paid by non-employed people who want to fill in gaps in their contribution history, usually to ensure their entitlement to the basic state pension.

Class 4 National Insurance contributions are paid by the self employed and do not give any entitlement to the state pension (or any other benefits).

People who are unable to work due to ill health or disability and are claiming benefits, or who are unemployed and claiming Jobseeker�s Allowance are normally entitled to a National Insurance credit for each week they are claiming. These credits count as a Class 1 National Insurance contribution for entitlement to most benefits including the basic state pension. Credits may also be awarded to carers claiming Invalid Care Allowances, young people in full time education, for certain training courses and for men aged 60 to 64 who are not working. Not all credits count towards entitlement for all benefits but most count towards the basic state retirement pension. (Carers who are not entitled to Invalid Care Allowance may be entitled to a reduction in the number of years required to qualify for a full basic state pension.)

If you do not qualify for a basic state pension, or are only entitled to a reduced basic state pension, you will be reliant on other benefits during your retirement. It is however possible to �top up� your National Insurance contributions history to improve your entitlement to a basic state pension. You can request a state pension forecast from the Retirement Pension Forecasting Team in Newcastle to find out whether you are on target for a full basic state pension. Contact details are provided further down this page.

The additional state pension

The additional state pension is based on your National Insurance contributions as an employee. It is not applicable to the self employed.

Until April 2002 the additional state pension was known as SERPS (State Earnings Related Pension). From April 2002 this was replaced by the State Second Pension S2P (to avoid confusion with SSP meaning statutory sick pay).

Contracting out of the additional state pension

You can opt to contract out of the additional state pension. In this case the National Insurance contributions which would have contributed towards your additional state pension are paid into a contracted out pension scheme. The intention being that the contracted out pension would provide pension benefits at least equivalent, and hopefully better, than those you would have received under the additional state pension.

If you contract out using your employer�s pension scheme both you and your employer pay lower National Insurance contributions and your employer contributes an equivalent amount into the scheme. The scheme can be based on the contracted out element only or it can include normal employer and employee contributions.

If you contract out using a pension you arrange yourself then you continue to pay the full level of National Insurance contributions but, once a year, HM Revenue & Customs pay a rebate of your national insurance contributions directly to your pension scheme. It is now possible to take up to 25% of the fund as a lump sum at retirement. However, due to the level of rebates and lower expectation of investment returns, it is unlikely that contracting out of S2P will match the benefits guaranteed by the government by remaining contracted in.

Inheritance of SERPS and State Second Pension

If you are entitled to an additional state pension and die, your surviving spouse may be entitled to continue receiving part of your additional state pension if they are over their state retirement age or once they reach that age if they have not already done so. The amount they can receive after your death depends on a complex set of rules.

Due to confusion when the new rules were introduced in 1986 (effective from April 2000) the Government postponed the changes until October 2002 and announced further transitional provisions in the period from October 2002 to October 2010.

From 6 October 2010 the maximum percentage of your SERPS which can be paid to your surviving spouse will be 50%. From 5 October 2002 until 6 October 2010 there is a sliding scale reducing the maximum from the previous maximum of 100% to 50%.

The maximum the surviving spouse can inherit may also be restricted subject to:

The amount of SERPS they receive based on their own contributions

The receipt of bereavement allowance

The receipt of widowed parent�s allowance

From April 2002 SERPS was replaced by the Second State Pension. The maximum amount of Second State Pension that will be paid to your surviving spouse is 50%.

Obtaining a state pension forecast

You can get a forecast to tell you, in today�s money, what state pension you have earned to date and what you can expect to have earned by the state pension age. It will include details of your additional state pension if you have one.

The forecasts are available from the Retirement Pension Forecasting Team in Newcastle upon Tyne. You can apply in three ways:

Online from The Pension Service website

By telephone on 0845 3000168 (lines open from 9am to 5pm and charged at local rates)

In writing, to request a forecast application form:
Retirement Forecasting Team,
Room TB001,
Tyneview Park,
Whitely Road,
Newcastle upon Tyne,
NE98 1BA

A forecast may be helpful to ensure that you are on track to qualify for a full basic pension so you can take remedial steps as early as possible if you are not.

Other benefits in retirement

You may be entitled to further benefits depending on your personal circumstances.

In the event that you have insufficient National Insurance contributions to entitle you to any state pension, you will be reliant on other benefits during your retirement.

The Government introduced Pension Credit in October 2003 for people aged 60 or over living in Great Britain. It is a means tested benefit (based on your income level) and is not based on national insurance contributions. You can claim it from age 60 whether you are working or not. The pension credit has two parts: