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Guide to what the state pays in retirement

Introduction

Today, no-one really believes that when they retire the state will take care of them by paying them a pension adequate for their needs. The reality is that the state pension is a very basic safety net, providing only the bare minimum to live on.

To understand that, you need to know exactly how much may be paid each week when you do retire.

There are three main components to the state’s support for people in retirement, which may overlap:

• The basic state pension
• Pensions Credit
• The State Earning-Related Pension (Serps) and the State Second Pension (S2P).

None of these schemes are mutually exclusive and, depending on age, your earnings and number of years in work, you may be entitled to one or more of these benefits.

Basic state pension

This is the most basic form of help for people in retirement.

State pensions are currently paid at 65 for men and 60 for women.

• Over a 10-year period starting on 6 April 2010, women’s pension ages will gradually be raised to 65. In effect, women born after 5 April 1955 will only receive a state pension at 65.

• The current maximum state pension is £90.70 for a single person and £145.05 for a couple (for 2008 - 2009). Generally, it rises in line with inflation. This means, in essence, that your livings standards tend to fall behind those still in work, because their salaries often rise faster than inflation. Also, as old age campaign groups point out, inflation indicators don’t always reflect the true cost of living increases that pensioners face.

• Not everyone receives the maximum pension. This is because it is based on the number of “qualifying years” you have paid or been treated as paying National Insurance contributions. If you have not paid sufficient contributions you may get a partial pension or you may not receive a pension at all.

• Men need 44 qualifying years for their full state pension. Women currently need 39 years, though this will be raised to 44. But if you have not worked for a period and were unable to make up the NI contributions you missed, your basic state pension will be reduced.

• The government plans to reduce the number of qualifying years it takes to earn a full basic state pension to 30 as part of its overhaul of the UK pensions system.

• For example, a man with 35 qualifying years receives 80 per cent of the current basic state pension, or £61.96 a week. To get the minimum basic State Pension (25 per cent) you normally need 10 or 11 qualifying years.

What happens if your basic state pension is not enough?

Pension Credit is a means-tested addition to the basic state pension. It is a combination of two different benefit arrangements, the Guaranteed Income Top-Up (GITU), and an additional Savings Credit.

How does Pension Credit work?

The new system still involves people receiving a basic state pension, based on their years in work. On top of this they also receive a Guaranteed Income Top-Up, or GITU.

How much is GITU?

This attractively-named payment is in addition to the basic state pension.

Together with any state pension you might receive, it is worth a total of £119.05 a week if you are single and £181.70 a week if you have a partner.

More pages

Page 1: Introduction
Page 2: Where does the Savings Credit come in?
Page 3: Top-up pensions

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