Helping to manage the cost of State Pensions because of increasing life expectancy

In his Autumn Statement, on 29 November 2011, the Chancellor of the Exchequer, George Osborne announced that the State Pension age will now increase to 67 between 2026 and 2028. The government said it took this decision because of increasing life expectancy, to help manage the cost of State Pensions. If you were born in the 1960s, find out how you could be affected.

 

Under current legislation, State Pension age is planned to increase to:
- 66 between November 2018 and October 2020
- 67 between 2034 and 2036
- 68 between 2044 and 2046

The government has announced that the increase to 67 will now take place between 2026 and 2028.

This change to the timetable is not yet law and will require the approval of Parliament.

Who is affected by the announcement?
This will mean that people born after 5 April 1961 but before 6 April 1969 will have a State Pension age of 67.

People born after 5 April 1960 but before 6 April 1961 will reach State Pension age between 66 and 67 as shown in the table.

Under the Pensions Act 2007, people born after 5 April 1969 but before 6 April 1977 already have a State Pension age of 67.

For people born after 5 April 1968 but before 6 April 1969, their State Pension age would have been between 66 and 67. Under the announcement these people will now have a State Pension age of 67.

Changes to State Pension age beyond 67
State Pension age is planned to start to increase to 68 from 2044 and this would affect anyone born after 5 April 1977.

The government is considering how the State Pension age could better reflect changes in life expectancy in the future. This is likely to mean that the existing timetable to increase State Pension age to 68 will be revised.

Basic State Pension- what is it?
Anyone who has enough qualifying years from their National Insurance (NI) contributions record is entitled to some basic State Pension. You can receive a basic State Pension based on the qualifying years of National Insurance contributions (NICs) you have.

When can you get a basic State Pension?
State Pension age is the earliest you can get a basic State Pension. You have to claim it. You can also choose to put off claiming (defer) and take your State Pension later. If you choose to defer you could receive an extra State Pension or a lump-sum payment as well as your State Pension when you do claim.

Will you get a basic State Pension?

You can get a basic State Pension by paying or being credited with enough National Insurance contributions (NICs) towards qualifying years before State Pension age.

In 2012/13, you need to have £5,564 or more of such earnings if:

You’re an employee

You’re paying National Insurance Contributions as a self-employed person

How many qualifying years do you need?

The number of qualifying years you need for a full basic State Pension depends on your age and whether you’re a man or a woman

Men born before 6 April 1945 usually need 44 qualifying years

Women born before 6 April 1950 usually need 39 qualifying years

Men born on or after 6 April 1945 need 30 qualifying years

Women born on or after 6 April 1950 need 30 qualifying years

Additional State Pension
An additional State Pension can give you extra money on top of your basic State Pension. It is also sometimes called the State Second Pension (it used to be called the State Earnings Related Pension Scheme (SERPS)). You may be entitled to additional State Pension if you’re employed, looking after a child or caring for someone.

Who gets the additional State Pension?
You may be contributing to or receiving credits towards the additional State Pension if you’re below State Pension age and you’re:

Employed and earning over £5,564 In 2012/13 (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

If you’re employed and have a pension then you may be ‘contracted out’ of the additional State Pension. This means you’re unlikely to be contributing towards the additional State Pension.

SERPS and the State Second Pension
The additional State Pension has gone under different names in the past. You used to receive additional State Pension through the State Earnings-Related Pension Scheme (SERPS).

When entitlement to the additional pension is calculated, the earnings on which it is based are revalued in line with the growth in average earnings.

Contracting out the additional State Pension
If you’re an employee with annual earnings above a certain amount (£5,564 in 2012/13) – you may be able to choose to leave the additional State Pension.

Changes to contracted out pensions from 2012
The rules for contracting out of the additional State Pension changed on 6 April 2012. The changes mean that contracting out will not be possible through:

A money-purchase (defined-contribution) occupational pension scheme
A personal pension or a stakeholder pension
If you were contracted out through one of these schemes on 6 April 2012, you will have automatically been brought back into the additional State Pension.
You’ll have commenced building up additional State Pension from this time.

If you are already contracted out
If you are already contracted out through either type of scheme, you will:
- Be able to continue to make your own contributions to the scheme
- Be able to continue to benefit from any employer contributions to the scheme
- No longer be able to benefit from any rebate of National Insurance contributions

Contracting out through an occupational salary-related (defined-benefit) scheme will still be allowed. However, contracting out for these schemes will be reviewed in the future.