State pensions

The value of the State Pension is often overlooked. From 10 April 2024, the full State Pension for people who reached State Pension age after 5 April 2016 is £203.85 per week, or £10,600.20 per annum. To purchase the equivalent benefit on the open market for a 65-year-old male would cost in the region of £260,000.¹ Many of us will not receive the full State Pension.

What is the State Pension?

The state pension is a guaranteed income for life, given to a person when they reach retirement age. You can receive up to the amount of £11,502.40 per annum, per person, and it's increased annually by the higher of Average Earnings Growth, Consumer Prices Index (CPI), or 2.5%, known as the 'triple lock'.

Will I qualify for the new State Pension?

To qualify you need a minimum of 10 qualifying years².

Qualifying years are achieved through the payment of Class 1, Class 2 and Class 3 National Insurance contributions (or through National Insurance credits if certain eligibility criteria are met).  

How many qualifying years do I need for a State Pension?

To receive any State Pension amount, you will normally need a minimum of 10 qualifying years. You can also qualify through National Insurance credits if certain eligibility criteria are met.  A full State Pension normally requires 35 qualifying years². 

I have worked for more than 35 years, does that mean I am entitled to the full State Pension?

If you have been self-employed, or lived outside of the UK for a period of time, this may have affected your entitlement to a full new State Pension, or if you were “contracted-out” for any period of time.

For anyone who started their working life before 2016, eligibility to receive the full single-tier State Pension could be affected by:

• Membership of your employer’s contracted-out defined benefit (final salary) scheme prior to 2016 
• Establishing a rebate-only personal pension to contract out of the State Earnings Related Pension Scheme (SERPS) or the Second State Pension (S2P) between 1988 and 2012 
• Gaps in employment 

In the case of point two, contributions were diverted to pension schemes at the expense of a complete National Insurance record (i.e. full NI was paid and then an amount rebated to the pension plan).

However, with point one, reduced National Insurance was paid and the DB scheme took on the responsibility for paying at least a minimum guaranteed level of pension.

How can I check my state pension entitlement?

The government’s State Pension forecast service can provide you with a statement of your present entitlement to the State Pension; and the potential State Pension based on earning qualifying years between the forecast and State Pension Age.

A State Pension Forecast can be obtained through the following methods:

Online - https://www.gov.uk/check-state-pension

You will require the details of your Government Gateway or a verified gov.uk account.

Postal - BR19 Form

A BR19 Form can be completed and forwarded to:

Newcastle Pension Centre, Futures Group 
The Pension Service 9 
Mail Handling Site 1 
Wolverhampton 
WV98 1LU

I am not entitled to the full amount, what can I do about it?

If you have gaps in your qualifying National Insurance contribution record, you may be eligible to make voluntary National Insurance contributions.

These will be either Class 2 or Class 3 depending on your individual circumstances.

Each year of voluntary contributions paid will provide you with 1/35th of the state pension, equivalent to an additional £6.32 per week (£328.64 per annum) today.

Following the introduction of the new State Pension, HM Revenue and Customs previously extended the scope of missed contributions which can be purchased, and allowed eligible individuals to purchase additional years dating as far back as the 2006/07 tax year.  As the deadline for filling these gaps is 5 April 2025, after this date you will only be eligible to make voluntary National Insurance contributions for the last 6 years.

How much are voluntary National Insurance contributions?

The rates for the 2023/24 tax year are:

£3.45 a week for Class 2

£17.45 a week or £907.40 per annum for Class 3

You usually pay the current rate when you make a voluntary contribution.

However, there may be instances when you pay different rates. If you're paying Class 2 contributions for the previous tax year or Class 3 contributions for the previous 2 tax years, you pay the original rate for those tax years.

Should I pay voluntary National Insurance contributions?

This matter should not be considered in isolation. It is vital that you gain a firm grasp of how your state pension income, along with your other potential sources of income, can be efficiently used to achieve your future lifestyle aspirations.

Only then can you decide whether or not you should make the additional contributions. This would normally depend on a number of factors: 

• Do you plan to continue working – Will you accrue qualifying years in the future? 
• Will making voluntary payments actually increase your State Pension entitlement? 
• Do you need the additional income it will provide? 
• Do you have sufficient disposable income or savings to make the voluntary payments? 
• Is this value for money?
• Life expectancy/health

Do I need to decide now?

You're a man born after 5 April 1951 or a woman born after 5 April 1953 

You previously had until 5 April 2023 but this has now been extended until 5 April 2025 to pay voluntary contributions to make up for gaps between April 2006 and April 2016, if you are eligible. 
 

Why does my State Pension forecast make reference to a Contacted Out Pension Equivalent (COPE)?

To understand COPE it is necessary to have a basic understanding of what being contracted-out meant in relation to the National Insurance Contributions you paid during that period.

If you were contracted-out of the Additional State Pension you either paid lower National Insurance Contributions (if you were a member of your employer’s Contracted Out Pension Scheme) or some of your National Insurance Contributions were paid into your own Personal Pension.

The government has recognised that if you have been contracted-out of the Additional State Pension you would have contributed less into the National Insurance system than someone with similar earnings who was not contracted-out, therefore, the amount of new State Pension that you receive will be reduced.

COPE is the equivalent monetary value that is placed on benefits that you may anticipate receiving from your individual scheme or pension provider as a result of being contracted-out of the Additional State Pension. It is not a guaranteed sum.

A number of clients who have received a forecast that includes a COPE figure have commented that it is highly confusing.

To clarify, your COPE is not deducted from the State Pension figure shown in your personal State Pension forecast.

It is simply provided as an indication of the additional retirement income you may receive in retirement from your Contracted Out plan.

I have already reached my State Pension Age, can I still increase my State Pension?

If you are a man born before 6 April 1950, or a woman born before 6 October 1952, you have a period of six years after you reach State Pension age to increase your state pension i.e. If you reached State Pension Age on 1 July 2014 you had until 30 June 2020 to pay extra voluntary contributions.

Due to the transitional arrangements which were put in place when the State Pension changed in April 2016, it is not straightforward to assess whether you will benefit from making voluntary contributions. Some advance preparation will be necessary if you would like our help:

Step 1: Request a State Pension Forecast via the Government Gateway 

https://www.gov.uk/check-state-pension

Step 2: Request your National Insurance Contribution record via the Government Gateway

https://www.gov.uk/check-national-insurance-record

Step 3: Once these records have been obtained you will need to contact the Future Pension Centre on 0800 731 0175.

This is a free phone number and an adviser will be able to tell you how many years of voluntary contributions are needed (if any) to meet the qualification requirements for receipt of a full new State Pension.

This article is based on our understanding of Government practice as at 6 April 2024. Individual entitlement will vary depending on circumstances.

Source notes:

1. Based on assureweb research; £11,502.40, escalation with RPI, no guarantees, paid monthly in advance 

2. Those with a pre 6th April 2016 National Insurance (NI) record can potentially achieve some state pension with one year of NI and full State Pension with 30 years of NI contributions.