State Pensions
T: 01329 833152 E: enquiries@activewealth.co.uk
Basic State Pension
Your National Insurance contributions (NICs) go towards building up a basic State Pension. The State Pension age is currently 65 for men and between 60 and 65 for women depending on when you were born. It may, however, increase in the future.
The amount of State Pension you get is based on the amount of NICs you have paid. You may not even get a pension if you’ve paid less than the minimum though this may change in the future.
In some cases you may be credited with NICs if you are not working. Your local social security office can tell you if you are entitled to credits. Or you can choose to pay voluntary contributions.
Additional State Pension
If you are (or have been) in employment, you may also be building up an additional State Pension – the State Second Pension, formerly SERPS (State Earnings Related Pensions Scheme). The amount of State Second Pension you get depends on your earnings and your NICs record.
Anyone earning below a certain amount set by government may be entitled to additional State Second Pension. Self-employed people cannot build up a pension through the State Second Pension. Some people who cannot work through long-term illness or disability,or carers, may get some State Second Pension.
Pension Credit
This is a benefit that the Government introduced to help pensioners with small or no savings at retirement. For more information read the DWP booklet A Guide to Pension Credit (PC10S). To get a free copy phone 0800 99 1234 (call rates may vary).
Remember though, governments can change the rules for State pensions and benefits at any time.
Contracting out of the State Second Pension
If you are an employee, you are automatically included in the State Second Pension unless you decide to leave it (called ‘contracting out’), or you are a member of an employer’s occupational pension scheme that is contracted out.
If you decide to contract out:
- you stop building up your State Second Pension entitlement and build up a replacement for it in your own pension instead (for example, in a stakeholder or personal pension);
- HM Revenue & Customs (HMRC) will pay a rebate of part of your National Insurance contributions into your stakeholder or personal pension.
You will continue to be contracted out of the State Second Pension, unless you decide to contract back in. If you are contributing to your employer’s occupational pension scheme, and it is a contracted-out. scheme, you cannot contract back in while you continue to be a member of that scheme. Check with your employer.
You should make sure you review your decision every year. The option to contract out may be removed in the future.