How Much Will My State Pension Be?

The state pension in the UK is set to increase by more than 10% in April 2023, thanks to the triple lock system. This system ensures that the state pension rises each year in line with one of three factors: average earnings, inflation measured by the consumer price index, or a minimum of 2.5%. The Times has an in-depth guide, which we’ve summarised below.

What is the state pension?

  • The state pension is an income given by the UK government when you meet certain age and eligibility requirements.
  • It’s funded by national insurance (NI) contributions made throughout your working life.
  • The full amount you receive depends on your national insurance record.
  • Typically, you need ten years of contributions to get any state pension and 35 years to get the maximum amount.

How has it changed recently?

  • The state pension increased by over 10% in April 2023.
  • This rise is due to the triple lock system.
  • Additionally, the state pension age is set to increase from April 2026.

What is the triple lock system?

  • It’s a guarantee ensuring the state pension increases annually, based on one of three metrics:
    1. Average wage growth (from May-July the previous year).
    2. Consumer price index (from the previous September).
    3. A fixed rate of 2.5%.

How is your pension amount determined?

  • You pay NI contributions if you’re an employee earning more than £242 a week or if you’re self-employed making a profit exceeding £6,725 annually.
  • If you can’t pay NI, you might qualify for national insurance credits to protect your pension entitlements.

Differences between the old and new pension systems:

  • The state pension underwent reforms on 6 April 2016, resulting in a simpler, one-tier system.
  • New full state pension (post-April 2016):
    • £203.85 a week (an increase from £185.15 in 2022).
    • Need 35 years of NI contributions for the full amount and ten qualifying years to get any amount.
  • Old basic state pension (pre-April 2016):
    • £156.20 a week (up from £141.85 in 2022).
    • 30 years of NI contributions required for the full amount.
    • Eligible for additional top-ups depending on various factors.

Understanding “contracting out”:

  • If you “contracted out” of the additional state pension, you paid less NI, with the savings directed to a private pension.
  • Contracting out affects your state pension entitlements, potentially reducing them.

Claiming your pension:

  • The pension isn’t given automatically; you must claim it.
  • The Department for Work and Pensions (DWP) will send an invitation letter two months before you reach state pension age.

Boosting your pension:

  • Options include making voluntary lump-sum contributions, deferring pension reception, spousal benefits, and additional top-ups.

DWP’s pension underpayment scandal:

  • Roughly 134,000 pensioners were underpaid due to DWP errors. Affected individuals might be owed significant compensation.
  • This mainly affects women who reached state pension age before April 2016.

Rules for those working abroad:

  • From 2022, UK citizens can’t count time working in certain countries (like Australia, Canada, and New Zealand) as qualifying years towards their state pension.

Retiring overseas:

  • You can receive your UK state pension abroad, but annual increases are limited to those living in specific regions like the European Economic Area (EEA).

What happens when your partner passes away?

  • You might inherit their state pension entitlements. The DWP can automatically adjust the surviving partner’s pension income.

Continuing work after pension age:

  • You can work and claim the state pension simultaneously.
  • If you reach pension age after April 2016 and defer your pension, every nine weeks you delay boosts your weekly pension by 1%.

This article serves as an introduction to the UK state pension system, providing insights into how it works, the differences between the old and new systems, and recent changes. If you’re concerned about your pension, it’s advisable to visit the government website to check your personal circumstances.