All state pensions are increased once a year, in April:
- The old basic pension and the new single-tier pension are normally covered by the ‘triple lock’, which means they increase each year in line with the higher of price inflation, earnings inflation, or 2.5 per cent. (In April 2022, the link to earnings was temporarily suspended because of the erratic behaviour of earnings inflation during 2020 and 2021 due to the coronavirus lockdowns.)
- The old additional pension is increased in line with price inflation.
Price inflation is measured as the annual change in the Consumer Price Index (CPI) up to the previous September and earnings inflation is the annual increase in average earnings over the previous May to July. The time lag between measuring the increases and paying the State Pension amounts isn’t a problem when inflation is stable. But when inflation is rising, it takes a while for your pension to catch up with the cost-of-living increase you’re experiencing.
Setting the time lag aside, what’s important about state pensions is that – unlike most other pensions – they keep pace with, or even exceed, price inflation, however high prices rise.
How much is the old State Pension?
If you reached your State Pension age before 6 April 2016, your State Pension is paid under the old rules described in this section. Your pension may have two parts: a basic pension that most people get, and an additional pension mainly built up during periods when you worked as an employee. There is also a non-contributory, non-means-tested State Pension of £93.60 a week (2023/24) that you can claim from age 80 if your existing State Pension is less than that (or zero).
Basic State Pension
The full basic State Pension for a man or woman (April 2023/24) is £156.20 a week, and £249.80 for a married couple. These are the maximum amounts available. If you do not have enough qualifying years for the full basic State Pension, you will be entitled to a lower amount. The number of qualifying years you need for a full basic State Pension depends on when you reached State Pension age: if on or after 6 April 2010, you require 30 qualifying years to get a full basic State Pension and just one year to qualify for any pension. Each qualifying year of paid or credited contributions is therefore worth 1/30th of the full basic State Pension, up to a maximum of 30/30ths.
At present, the basic pension is increased annually, normally by the high-est of price inflation, earnings or 2.5 per cent (called the ‘triple lock’).
Additional State Pension
If you spent some or all of your working years as an employee, you may have been building up an additional State Pension. (This was formerly known as SERPS – the State Earnings Related Pensions Scheme – but was replaced by the State Second Pension in April 2002.) The amount of addi-tional pension you get depends on your earnings, your NICs record and whether you were ‘contracted out’ of the additional pension. Contracting out means that you were covered by a pension scheme at work, or a personal pension that you arranged yourself, which was designed to provide a pension that would replace your additional State Pension. In return, you either paid a lower rate of NICs or part of the NICs you had paid were given back by paying them into your pension scheme. It’s common for people to have been contracted out for just part of their working life. So, at retirement, you may still get some additional pension, as well as the replacement pensions from the workplace and personal schemes.
In theory, the additional pension can be a substantial amount – £203.85 a week (2023/24) on top of the basic pension. In practice, because higher earners tend to have contracted out, the average amount is much lower, at around £20 to £30 a week.
There were other means of entitlement to some State Second Pension: for example if you earned below a certain amount set by the government, if you could not work through long-term illness or disability, or if you were a carer. You could not build up any additional pension during periods when you were self-employed.
The additional pension is increased each year in line with price inflation. (The ‘triple lock’ does not apply to this part of your pension.)
How much is the new State Pension?
If you reach your State Pension age on or after 6 April 2016, your State Pension is paid under the new rules described in this section. So this section applies to you if you are a woman born on or after 6 April 1953 or a man born on or after 6 April 1951. Eventually, everyone will get just this new State Pension. However, there are rules to protect your rights to the amount of pension you may already have built up under the old state scheme, so for a long time many people will get a transitional amount of State Pension that is higher than the full-rate new pension.
New State Pension
The full-rate new pension for a man or woman (April 2023/24) is £203.85 a week. Each person builds up their own entitlement, so – unlike the old state system – there is no rate for couples. This is the maximum available. If you do not have enough qualifying years for the full new pension, you will be entitled to a lower amount based on the number of qualifying years in your NICs record.
The number of qualifying years you need for a full new State Pension is 35, though you need 10 years to qualify for any pension. Once the new system is fully operational, provided the 10-year threshold is met, each qualifying year of paid or credited contributions is worth 1/35th of the full new State Pension up to a maximum of 35/35ths. (However, the calculation is a little different if you had also built up pension rights under the old state system – see below.)
The new pension up to the full rate is increased annually, normally by the highest of price inflation, earnings or 2.5 per cent (sometimes called the ‘triple lock’).
The full-rate new pension is higher than the old basic-rate State Pension.
However, under the new system, there is no additional pension.