Pension in the UK
Between two categories, the British population can be eligible for any one category of government pension. The first category, called basic state pension, is for men born before 6 April, 1951 or women born before 6 April 1953. The second category is new state pension. It is available for men born after 6 April, 1951 or women born after 6 April 1953. The new state pension is set to replace the basic state pension.
Who is eligible?
You need to reach the state pension age to be able to receive pension. This age can be anywhere between 61 to 68 depending on your year of birth. Additionally, you need to have a national insurance record to be eligible for pension. For new state pension, you need to have ten years (qualifying) of National Insurance Record. And, to claim the highest amount under the basic state pension, the national insurance record should be for 30 qualifying years. This record could be in the form of making national insurance contributions or obtaining national insurance credits.
When does the money become available?
Basic state pension is available for people who may reach the stage pension age before 6 April 2016. Under the new state pension, you can start receiving regular pension from the government upon reaching the pension age either on or after 6 April 2016.
How much money is available?
The basic state pension provides a maximum of £113.10 per week. As of now, new state pension is expected to be not below £148.40 each week. However, the actual amount will be decided in the autumn of 2015.
How frequently does the pension amount increase?
Each year, the basic state pension can go up based on any one of three criteria. The increase will be to match the highest of these three factors. First factor is the percentage at which wages have increased on average in Great Britain. Second, the increase could be same as the percentage increase in prices as per to the CPI (Consumer Prices Index). As a third option, the pension may increase at a rate of 2.5%. For example, if earnings increase at 1.5% and prices increase at 2%, the pension will increase at a rate of 2.5%. However, if earnings grow at 2% and prices increase at 3%, then the pension will increase at a rate of 3% (the highest increase).
How does state pension affect your household finances?
State pension serves as household income after you have reached a certain age. If you get a pension of £140 every week or approximately £7,420 (140 x 53 weeks) every year, you can add this amount to your income. You can continue to work even after reaching the state retirement age. In this case, pension income will be added to your employment income. Note that pension amount is taxable.
To calculate the effect of pension income on your household budget, you can use our household budget calculator.
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