State Pension Plan

Basic State Pension

Basic state pensions apply to anyone who has enough qualifying years from their National Insurance (NI) contributions.

Factors:
• How many qualifying years you have built up to date
• The number of years before you reach State Pension age
• Whether you may be affected by changes to the State Pension

Claiming your benefits is fairly automatic as the Pension Service should automatically send a State Pension Information Booklet and invite you to claim four months before you reach State Pension age. If you haven't received the booklet within three months, call the State Pension claim line at 0800 731 7898 from 8:00 to 20:00 (Welsh information 0800 731 7936).

Documents needed to file claim:
• National Insurance number
• Current address and postcode, plus your last two addresses
• Tax reference number
• If you're married or in a civil partnership, bring the husband's/wife's/partner's details (this includes their National Insurance number and the date of your marriage or civil partnership)
• If you're divorced or widowed or your civil partnership has dissolved or you're a surviving civil partner, bring documentation of dates including details of any social security benefits or entitlements that you or your husband, wife or civil partner are getting or waiting to hear about
• Address of any employer you've worked for in the last two years, and the dates that you worked for them
• If you've ever lived or worked outside the UK, bring your social security number and relevant dates

Additional State Pension

You can build up additional funds if you are below State Pension age and you are:

• Employed and earning over 5,044 pounds (from any one job)
• Looking after children under 12 years old and claiming child benefit
• Caring for a sick or disabled person for more than 20 hours a week and claiming Carer's Credit
• A registered foster carer and claiming Carer's Credit
• Receiving certain other benefits due to illness or disability

You cannot build up additional State Pension if one of the following applies to you:
• Self-employed (because you pay lower National Insurance contributions)
• Unemployed
• In full-time training

Originally known as State Earnings-Related Pension Scheme (SERPS), the additional pension plan should be received when you claim your basic State Pension.

Age of Eligibility

Currently, the State Pension age for men is 65 and 60 for women.

The age of women's retirement is increasing gradually from 60 to 65, to match men's. New proposals about age increases would affect pensioners born between April 6th, 1953 and April 5th, 1960. It is expected that from December 2018 the State Pension age for both men and women would start to increase to reach 66 by April 2020.

If you put off claiming State Pension, you can earn:
Extra State Pension (If you put off claiming your State Pension for at least five weeks you can earn an increase to your State Pension of 1 per cent for every five weeks you put off claiming.)
or a One-off taxable lump sum payment (If you put off claiming your State Pension continuously for at least 12 months, you can choose to receive a lump sum payment and your State Pension paid at the normal rate).
You can do this by working past the State Pension age, or by stop claiming benefits after having claimed it for a period.

To calculate your State Pension age, use the calculator.

Company Pension Plan

There are different types of company pension plans or occupational pensions available. Company pension plans usually require you to make a regular contribution based on a percentage of your salary. You receive tax relief on the money paid into the pension. Though it depends on the company, there are generally two types: a salary related or money purchase scheme.

Salary Related Scheme

In a salary related scheme, the amount of your fund is based on your salary and the number of years you have been in the scheme.

Money Purchase Scheme

A money purchase scheme's benefit is determined by how much has been paid into the scheme and how well the money has been invested.

In either case, the deposit structure is the same. For example:

• Anna puts 40 pounds a month into her company pension scheme
• Anna's pension contribution reduces her taxable pay so she pays less tax on her total pay
• Anna's employer puts in another 40 pounds every month
• Total = 80 pounds a month to Anna's pension

Benefits

Final salary scheme - The amount of pension received is based on your salary and the number of years you've been in the scheme.
Money purchase scheme - The amount of pension received is based on how much you and your employer have contributed and the interest or growth that has been earned. At retirement, your fund is used to provide your pension, often by buying an annuity (a regular income for life). How much your fund will continue to provide is calculated using an annuity rate which depends on factors such as your age, sex, and interest rates at the time.

Claiming Your Pension

When and how you can claim your pension depends on the company. This will be outlined in the scheme's rules. However, a forecast of how much you will receive when you retire, estimates of any survivor's benefits that may become payable, and how much you will get if you have to retire early due to ill health should be readily available. In a change in legislation from 2006, you are able to draw on your pension and continue to work for the same employer.

Personal Pension Plan

It is a great investment in your future to set-up a personal pension plan to supplement the income you receive from a state pension. Anyone can set one up whether they are employed, self-employed or not working. Private pensions are available from banks, building societies and life insurance companies. Once it is established, you can control how much money you pay into it.

A personal plan does not effect basic State Pension, but may reduce the amount of additional State Pension you can build. However, you will be able to receive tax relief on the amount you put in. Up to age 75, tax relief on contributions of up to 100 per cent of your earnings each year is offered.
For example, for every 80 pounds you pay into a personal pension, the Government adds an extra 20 pounds into the fund. This is subject to an upper "annual allowance" of 255,000 pounds for the 2010-11 tax year. Savings above the annual allowance will be subject to a tax charge. Also, for those making over 150,000 pounds annually, tax relief will be reduced.

A personal pensions is best for:
• Self-employed
• People who are not working but can afford to pay for a pension
• Employees whose employer does not offer a company pension scheme or they choose not to participate
• Employees on a moderate income who wish to top up the money they would get from a company pension

The Pensions Advisory Service (TPAS) are a great resource for questions about setting-up or running a pension fund. They also respond to citizens with a problem, complaint or dispute with their occupational or private pension arrangement.

Benefits

A yearly forecast informs investors of the status of the fund. It also lets you know the expected pay-out if contributions remain the same. The final value will be determined by how much has been paid in and how well the fund has performed. Charges of running the fund will also be deducted.

Upon retiring, you can take up to 25 per cent of the value of your total personal pension savings as a tax-free lump sum. You then have two options:
1. Use the remaining fund to buy an annuity (a regular income payable for life) from a life insurance company
2. Take an income (taxed at your normal Income Tax rate) from the remainder of your fund while it continues to be invested – as an "unsecured pension" up to age 75 or an "alternatively secured pension" once you reach age 75.

Age of Eligibility

The earliest age at which you can take your personal pension is 55. Some funds allow you to take your pension out before this point, but this is uncommon.

It is common to wait until age 60 or 65 and take this money out in tandem with the state fund, but you do not have to retire from work to get your pension benefits. You can wait to close the fund until 75 if you wish.

Stakeholder Pension

A type of personal pension, stakeholder pensions are similar to other money purchase pensions. The difference is that these pensions must meet a number of minimum standards. The standards include:

• Limit on annual management charges (Managers can charge fees of up to one and a half per cent of the pension fund each year for the first 10 years you hold the product, and thereafter up to one per cent)
• Flexibility: (1. you can switch to a different pension provider without the provider you leave charging you, 2. you can start contributions at 20 pounds, 3. payment can be every week, month or at less regular intervals, you can stop, re-start or change your contributions without fees)
• Security: (Plans are run by trustees or by an authorized stakeholder manager)
• Contribution levels and tax relief: (You can contribute as much as you want. You get tax relief on contributions of up to 100 per cent of your earnings each year).

Expat

The system of collecting state pension is a bit more complicated for British living abroad, and for expats living and working in the UK. Expats can claim their State Pension if living outside the UK. However, you'll only receive the yearly index-linked increases if living within the European Economic Area (EEA) or Switzerland or in a country with which the UK has a social security agreement regarding state pensions.

Making Contributions while Abroad

If you're working abroad, you may be able to pay into the State Pension scheme of the country where you're working. This is easily arranged with EEA countries. Depending on how long you work abroad, you can have your contributions credited to your UK State Pension or you could receive two pensions - one from the UK and one from the country where you lived and worked. This will be decided when you reach State Pension age, taking into account where you live.

Paying Tax on State Pension

You may need to pay tax on your state pension if you are classed as a "non-UK resident" for tax purposes. If you spend part of your time in the UK and part abroad you're likely to be classed as a UK resident. If you live abroad permanently, you're likely to be classed as a non-UK resident.

Non-resident your tax position depends on whether you live in a country with a double taxation agreement with the UK. This means you will not have to pay UK tax on your State Pension, but it will be taxable in the country where you live. If you live in a country without a double taxation agreement, you'll have to pay UK tax and may be taxed again abroad.

Government Agencies to Inform of Your Move

If you're moving abroad to live, you'll need to tell:
• International Pension Centre
• HM Revenue & Customs' National Insurance Contributions Office
• Tax Office

The International Pension Centre (tel: 44 191 218 7777) handles all issues regarding the payment of State Pension, bereavement benefits, incapacity benefits and other benefits for those living abroad.

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