Basic State Pension

Working people usually pay National Insurance Contributions (NICs). This means that they are building up the right to get a basic State Pension when they reach the State Pension age. If you reached state pension age before the 6th April 2016 you will be receiving the state pension under the old rules.

The state pension age has been undergoing radical reform since April 2010. The changes see the state pension age rise to 65 for Women between 2010 and 2018 and then to 66, 67 and 68 for both men and women, detailed as follows:

  • 66 between November 2018 and October 2020.
  • 67 between 2034 and 2036.
  • 68 between 2044 and 2046.

The government is continually changing the state pension rules, and because state pensions are funded out of current taxation revenue, it is likely the real value of state pensions will erode further over time.

The state pension age is regularly reviewed to make sure that the state pension is affordable and fair. People are now living longer and spending a larger proportion of their adult life in retirement than in the past.

When the state pension was introduced in 1948, a 65 year old could expect to spend 13.5 years in receipt of his pension – around 23% of their adult life. This has been increasing ever since. In 2017 a 65 year old can now expect to live for another 22.8 years or 33.6% of their adult life.
Latest projections from the office of National Statistics (ONS) show that the number of people over state pension age in the U.K. is expected to grow by a third between 2017 – 2042, from 12.4m people to 16.9m people in 2042.

Under the current law, the state pension age is due to increase to 68 between 2044 and 2046, following a recent review, the government now plans to bring this timetable forward. The state pension age would therefore increase to 68 between 2037 – 2039.

These proposed changes will have to be approved by parliament before they are agreed, however what is patently evident, is that the value of state pensions and the length of time individuals will be in receipt of them, is going to reduce over time.

The alternative would be significantly higher levels of taxation, and this is unlikely to be either desirable or achievable.

The necessity for private pension planning is therefore key, and please do speak to our office if you want specific guidance under this heading.

A basic state pension forecast issued by the DWP (Department of Work & Pensions) is the best way to ascertain an entitlement to the basic state pension. The forecast is available on line at www.gov.uk/state-pension-statement.

As a consequence of the limited value of state pensions, private pension provision is paramount, and our attached Key Guide entitled ‘Saving for Retirement’ and ‘Taking Income at Retirement’ provide detailed information on the current pensions landscape. We update these Key Guides quarterly.

Contact us for further information.