Partner Sue Dowling, in our Employment Law team, provides answers to common questions employees may have in relation to pensions.
How is the State Pension funded?
In general terms the State Pension is funded by the government but is based upon the amount of years of National Insurance (NI) contributions which an employee has made.
What is the new State Pension?
It is the pension payable to men born after 6 April 1951 and women born after 6 April 1953.
At what age is the new State Pension payable?
At present it is 68 although for some older employees it may be 66 or 67. The government has also stated that the state pension age is currently under review.
How much is the new State Pension?
From April 2021 it is £179.60 per week.
How many years of NI contributions do I need in order to earn a full new State Pension?
For a pension awarded after April 2016 (called a new State Pension) you generally need 35 full years of NI contributions.
What is the minimum number of NI contributions required to earn any new State Pension?
For a pension awarded after April 2016 you generally need a minimum of 10 full years NI contributions. The 10 years need not however be continuous.
How do I get a year of full NI contributions?
You can either have been working and paying NI contributions; or you were receiving NI credits; or you were paying voluntary NI contributions.
How is the amount of NI determined for a full year?
It is based on the Lower Earnings Limit (currently £123 per week from April 2022). For a year to count as a full qualifying year you must have paid (or been credited with) NI contributions on 52 weeks x the Lower Earnings Limit. In the 2022/ 23 tax year this will be 52 x £123 = £6,396.
How many people generally qualify for a full new State Pension?
In 2016 it was estimated that around half of the applicants for a State Pension qualified for a full State Pension. This is expected to rise.
I previously paid a reduced NI contribution rate as a married woman. Do those years count towards a new State Pension?
Maybe, subject to relevant criteria or you may, in certain circumstances, be able to rely on your husband’s NI contribution record in order to qualify for a State Pension.
I previously paid a reduced NI contribution as my employer’s pension scheme was “contracted out”. Do these years count towards a new State Pension?
Yes, but there will be a reduction made in the amount of State Pension due, owing to the effects of “contracting out”.
Can I pay more NI in order to make up any deficit in full or part years?
Yes, you may be eligible to pay more NI as voluntary contributions to make up either full or part years, if you wish to do so.
If you choose to pay voluntary NI contributions the standard rate is £15.40 per week (2021/22 rates).
Is there a time limit in order to pay any voluntary NI?
Yes, you generally have to pay any voluntary contributions within 6 years of the end of the relevant tax year. In certain circumstances however you may also be able to pay voluntary contributions for gaps from more than 6 years ago, depending upon your age.
If you are a man born after 5 April 1951 or a woman born after 5 April 1953 you may be eligible to pay voluntary contributions to make up for gaps between April 2006 and April 2016, until April 2023.
Do I have to stop working when I reach State Pension Age?
No, there is no longer any requirement to do so. You will not however have to pay any further NI on your earnings after you have reached State Pension Age.
Do I have to pay tax on my State Pension?
Pensions are taxable income in the same way as earnings. Whether or not you have to pay tax depends upon your total taxable income and your individual tax code.
Do I have to take my pension at State Pension age?
No. You can defer receipt of your State Pension should you wish to do so. For every year by which you defer the pension will increase by around 5.8% (at current rates).
Where can I see my NI contribution record?
You can see it online in your Government Gateway Account.
What changes have the government recently announced in respect of NIC?
They have announced that NIC rates will rise by 1.25% from April 2022 in order to fund changes in social care.
Can you help me further?
Yes, our team of experienced Employment Lawyers would be pleased to advise on Employment Law applicable to your individual circumstances, where appropriate. Alternatively, for specific pension related advice you should consult an independent financial adviser.
Our specialist Employment Law team can advise on the full range of Employment Law matters. The content of this article is a summary of relevant law which is provided for general information purposes only and does not constitute financial or legal advice.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
