State Pension

The State Pension is a regular payment from the Government based on your previous National Insurance contributions. It applies to anyone who has enough qualifying years from their National Insurance (NI) contributions.
There are two different systems for claiming State Pension.

• The basic state pension: It applies if you are a woman born on or before 5 April 1953 or a man born on or before 5 April 1951). It's the date that you reach State Pension age that's important, not when you start to claim it.
• If you were born after the above dates and therefore reach State Pension age after 5 April 2016, the new State Pension rules will apply to you.

As of 2021, the maximum basic State Pension is £137.60 a week. Use the State Pension profiler to estimate how much you can collect and when.

Age of Eligibility

Currently, the State Pension age is 66 years old (pension age is set to increase from 66 to 67 between 2026 and 2028.). However, you can keep working after you reach State Pension age, since ‘Default retirement age' (a forced retirement age of 65) no longer exists.

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. This works out as 10.4 per cent for every 52 weeks.
• One-off taxable lump sum payment. A lump-sum payment is an often-large sum that is paid in one single payment instead of broken up into installments. For example, 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.

Company Pension Plan (workplace pension scheme)

Most of the people get a state pension from the government which helps you cover basic necessities, but it is also recommended trying to save some extra money in a pension fund, to give you a decent standard of living. There are different types of company pension plans or occupational pensions available. Workplace 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.

Your employer may also make contributions to your pension through the scheme. If you are eligible for automatic enrolment, your employer has to make contributions into the scheme.

Though it depends on the company, there are generally two types: a salary related or money purchase scheme.

• Final Salary Scheme: In a final salary scheme, the amount of your fund is based on your salary and the number of years you have been in the scheme.

It does not include the performance of any stock market or other investments you might own.

• Money Purchase Scheme: The amount you pay into the Money purchase scheme is automatically invested with the aim of giving you an amount of money when you retire.

This means, that the final pension amount can fluctuate in value. Therefore, the value of benefits payable are not known in advance and the member bears the investment risk.

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 affect 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.

It is recommended to get a personal pension for people who:

• Is 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.

Types of personal pension

There are different types of personal pension. They include:

• Stakeholder pensions - these must meet specific government requirements, for example limits on charges
• Self-invested personal pensions (SIPPs) - these allow you to control the specific investments that make up your pension fund

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:

• Use the remaining fund to buy an annuity (a regular income payable for life) from a life insurance company
• 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.

Expatriates

The system of collecting state pension is more complicated for British living abroad and for expats living and working in the UK. If you live outside the UK and you have paid enough UK National Insurance contributions to qualify, you can claim their State Pension.

You can get a State Pension forecast if you need to find out how much State Pension you may get.

Making Contributions while Abroad

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.

Due the United Kingdom decision to leave the UE, new rules on applying/claiming your state pension in the EU, EEA and Switzerland now apply.

However, you can still carry on receiving your UK State Pension if you move to live in the EU, EEA or Switzerland and you can still claim your UK State Pension from these countries.

You can also count relevant social security contributions made in EU countries to meet the qualifying conditions for a UK State Pension.

To apply after you reach you retirement age, you will need to tell the government office that deals with your benefits or your UK State Pension if you are moving or retiring abroad.

Claiming your pension

When and how you can claim your pension depends on your pension scheme's rules, but it is usually after you are 55 (average age between 60 and 65 years old).
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.

Paying tax on pension

You pay tax if your total annual income adds up to more than your Personal Allowance (standard Personal Allowance in 2021 is £12,570)
Your total income could include:

• The State Pension you get
• A private pension (workplace or personal)
• Earnings from employment or self-employment
• Any taxable benefits you get
• Any other income, such as money from investments, property or savings

If you live abroad but are classed as a UK resident for tax purposes, you may have to pay UK tax on your pension. The amount you pay depends on your income.

However, if you are a 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 will have to pay UK tax and may be taxed again abroad.

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