What you need to know about the State Pension

The State Pension is an income provided by the government once you reach state retirement age, which is 65 for men and is in the process of increasing to 65 for women. It is also quite complicated, so to help overcome any confusion we’ve answered some of the main questions:

How much is it worth?

The full basic amount is currently worth £115.95 per week, or £6,029 a year.

How do I get it?

You need a certain number of qualifying years to receive the full basic amount. These are calculated using National Insurance contributions, which are taken from earnings or are paid using National Insurance credits for people who are not working. A qualifying year is a full year that the contributions have been made, and currently 30 years are needed to receive the full sum.

Is it taxable?

Yes, it is counted along with other income. However, in the current tax year you are able to earn £10,600 before paying income tax, so if you have no other sources of income then you will not pay tax on it. If your combined earnings exceed £10,600, you will pay income tax on the portion that is above the threshold.

Did it change with the freedoms?

No, it was excluded from the new pension rules. However, there will be significant changes in April 2016 with the introduction of the single-tier State Pension. This will require 35 qualifying years, and it will work on a pro-rata basis with each qualifying year accounting for 1/35th of the full amount. The value has not yet been confirmed, but the current illustrative figure is £144 a week, or £7,488 a year.

Do I have to wait until I can take the State Pension before I can retire?

No. It is not possible to start claiming before reaching the minimum age, but technically you can retire at any age. You are also able to access private pensions from the age of 55, including for pension release.

What if I don’t want to take it?

You are not forced to take the State Pension when you are eligible to. In fact, if you reach state retirement age before April 2016 your entitlement increases by 10.4% for each year that it is deferred, providing you a higher income for life. If your state retirement age is on or after April 2016 then it will increase 5.8% for every deferred year.

Can I take a lump sum?

Pension release isn’t possible from the State Pension, and you aren’t allowed to withdraw ad-hoc lump sums as it provides a regular income for the rest of your life. The only exception is if you have deferred it you can take the accrued amount as a lump sum. For example, if you deferred for two years, instead of receiving an increased income for the rest of your life you could take the difference as a lump sum and receive the regular amount as an income.

Did you know that you could retire before state retirement age? Let us know with a comment below.

Call 0800 304 7288 for a friendly chat about your pension

Information in this blog was current at the time of publishing, but may no longer be up-to-date with current legislation. Please visit our blog for the latest pension articles.

The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new

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