In the UK, the government provides a guaranteed pension income for life, known as the State Pension, which is paid to those who qualify after reaching State Pension age.
However, the full amount available is insufficient for most people to live on.
Therefore, it is crucial for anyone approaching retirement or their State Pension age to understand how much they will receive from their State Pension and when they will start to receive it, enabling them to plan their retirement effectively.
Do I Qualify for the State Pension?
You will qualify for the State Pension if you have a minimum of 10 qualifying years on your National Insurance record. The amount you receive increases proportionately with the number of qualifying years you have, and you will receive the maximum State Pension if you have at least 35 qualifying years.
A qualifying year is an annual period during which your salary is equal to or greater than the Lower Earnings Limit.
Do I Need to Pay NICs to Qualify for the State Pension?
Technically you don’t need to have paid National Insurance Contributions (NICs) to qualify for the State Pension. As you don’t start paying NICs until your salary exceeds the NIC Primary Threshold, you can still accrue qualifying years if your salary falls between the Lower Earnings Limit and the NIC Primary Threshold.
How Much Is the State Pension?
If you have fewer than 35 qualifying years, the amount you receive will be reduced proportionally.
For those who reached State Pension age before 6 April 2016, they are currently receiving the old State Pension, which may be a different amount.
When Do I Receive My State Pension?
The State Pension age is currently 66 for both men and women but may vary depending on your date of birth.
From April 2026, the State Pension age will increase to 67, and is expected to reach 68 by around 2044.
Can I Still Work and Claim State Pension?
You can continue working and earning after you’ve passed State Pension age and started drawing your pension, but you will no longer pay National Insurance from this point.
Remember that the State Pension counts as income, so it will contribute to your income tax liability.
Managing your income tax liability if you’re working while taking your State Pension is important.
Is There Anything Else I Might Need to Know About the State Pension?
There might be.
There are no longer any special State Pension arrangements for married couples. Each partner in a marriage or civil partnership needs to build up their own State Pension and cannot benefit from their spouse’s State Pension.
If one spouse does not work because they are caring for children under 12 and are registered for Child Benefit (even if they don’t receive it), they can accrue Class 3 NI credits for these years. These credits will build up qualifying years for the State Pension.
Anyone who isn’t employed can pay voluntary NI contributions to build up qualifying years.
If you live abroad or plan to move abroad and want to claim State Pension, you’ll need to contact the International Pension Centre. You can arrange for your State Pension to be paid directly into a bank account, either located in the UK or in the country where you’re living now. You can choose to be paid every four or 13 weeks.
Should I Wait Before Taking My State Pension?
If you choose not to take your State Pension from the State Pension age, the amount you’re entitled to will gradually increase. For every year you delay, the amount you can receive will rise by around 5.8%.
You might choose to do this if you are still working and don’t want to lose State Pension money to tax. However, this could be part of a complex set of decisions surrounding your retirement.
Most people don’t plan their retirement effectively and don’t know how much income they can safely live on in retirement.
The State Pension is a guaranteed, inflation-proofed source of income for life that will support you in retirement, but it is likely not enough for you to live on.
Most people rely on workplace or personal pension income to support them in retirement, but they may not realise that they could be withdrawing too much income and may end up running out of money too quickly.
They could also end up paying too much tax.
So, What Is the Solution?
Your state pension is just one element of retirement planning.
Regardless of what state pension you're entitled to, we believe cash flow forecasting is the key to securing a safe and sustainable retirement.
If you’re approaching retirement and are unsure how much you can live on, we can analyse your investments and pensions using the most up-to-date and comprehensive techniques available to determine what we believe is a sustainable amount of income for your retirement.
This means that you can rest easy, knowing that you aren’t taking unnecessary risks and that you’re always prepared for whatever challenges you might face in retirement.
To learn more about our cash flow forecasting and retirement planning, speak with an adviser from BlackBear Financial Group today.
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