One recent piece of good news is that the flat-rate state pension has increased to £175.20 per week (up from £168.60 per week) for the 2020/21 tax year. This equates to £9,141.69 per year or £761.81 per month.
The reason for the sizeable increase (3.9%) is due to the “triple lock”. This means that the state pension increases each year by the lower of inflation (measured by CPI), the rise in average national earnings (NAE) or 2.5%. Wage growth last year was higher than in recent years and exceeded both inflation and 2.5%, so this is the measure that was used to calculate the 2020/21 figure.
The triple lock was introduced in 2010 and has been the subject of much debate, as the underpin of 2.5% means the state pension has risen much faster than both inflation and wage growth in recent years.
The state pension was changed to the current flat-rate system in April 2016, intended to simplify the previous system of basic state pension, SERPS, State Second Pension and pension credits. To qualify for the full flat-rate state pension you now require 35 qualifying years of National Insurance contributions or credits. Those people who were better off under the previous system will still receive the higher amount they were entitled to.
State pension age is being gradually increased from the previous age 65 for men and age 60 for women, and is now age 66 for both. It will rise to age 67 by 2029, with a further rise to age 68 due between 2037 and 2039.
You can check your state pension forecast online at https://www.gov.uk/check-state-pension. It can be very cost-effective to “buy” additional qualifying years if you are short – the rate is £795 for one year. This equates to an additional £4.80 per week (roughly £250 per year) of state pension, so a basic rate taxpayer would expect to get their money’s worth after around 4 years.
You do have to claim your state pension as it will not be paid automatically. It is paid gross but is taxable, so your tax code is likely to change for any other sources of income.
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