Given the low levels of retirement savings across Britain, many people want to know more about the State Pension. What is it? How much is it? Who’s eligible for it? These are questions those nearing retirement often have. So let’s take a closer look at how it works.
What is the State Pension?
The State Pension is a sum of money paid by the government to people who have reached the State Pension age. It’s designed to ensure that everyone has some income to support themselves in their later years. In April 2016, the ‘new’ State Pension system was introduced.
How much is the State Pension?
The new State Pension is currently £164.35 per week. It’s normally paid every four weeks straight into your bank account.
What is the State Pension age?
The State Pension age is the earliest age at which you can claim your pension. It depends on when you were born. State Pension ages have been changing in recent years and the government is planning to raise the age to 68 for both men and women in coming years. If you’re unsure about your eligible age, you can check yours on the State Pension website.
Who’s eligible for the State Pension?
Not everyone is eligible for the payout. To qualify for the new pension, you’ll usually need to have at least 10 ‘qualifying’ years on your National Insurance (NI) record where you were working and paid NI. However, those who started paying NI after 6 April 2016 (i.e. you were born after the year 2000 or became a UK resident after 2015) will need 35 years’ worth of contributions to qualify for it. Those in this latter group with between 10 and 34 qualifying years will receive a proportionate amount of State Pension income.
How do you claim the State Pension?
The State Pension isn’t paid out automatically. Instead, you have to claim it. Usually, around four months before you reach the State Pension age, you’ll receive a letter from the Pension Service advising you what to do to claim your payout.
Can you live a comfortable retirement on the State Pension?
Moving away from the basic facts of the State Pension, let’s look at the more practical side of things. Is it enough to live off?
Looking at recent studies, evidence suggests that an individual living on the State Pension alone may struggle to get by. For example, research from the Joseph Rowntree Foundation (JRF) concluded that the income needed for a single retired person to live a ‘minimum acceptable’ standard of living is around £10,000 per year. Currently, the State Pension amounts to just £8,546.20 per year.
Of course, if a retired couple both received the State Pension, the outlook may not be as bad, as living costs could be shared. JRF concluded that a couple needs around £14,300 between them for a basic standard of living, so the State Pension (£17,092.40 for a couple) would cover it. Having said that, research from Which recently concluded that the average UK household currently spends around £26,000 per year in retirement, which is significantly above the State Pension payout. So if you’re hoping for a comfortable retirement, it’s probably a good idea to build up your savings as soon as possible in order to boost your retirement income.
