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The Basic State Pension

It's a flat rate pension, funded by National Insurance contributions (NICs), for those who reached State Pension age before 6 April 2016. Those who reach it after 5 April 2016 will instead fall into the New State Pension regime.

The rate of Basic State Pension for a single person with an adequate NIC record is set each year through the budget. For tax year 2024/25 this is:

• £169.50 a week (if single) or
• £271.05 a week (for married couples/civil partners)

The Basic State Pension can be claimed immediately on reaching State Pension age, but it's possible to have it deferred and paid at a later date.

There are three categories of Basic State Pension:

• Category A - This is contributory and consists of two parts: the basic pension and an additional earnings related element. It's normally dependent on the claimant's NIC record, but it's sometimes possible to get a Category A pension based (or partly based) on a former spouse or civil partner's NIC record using the substitution rules.
• Category B - This is also contributory and consists of basic and earnings related elements but it's payable by virtue of a current or deceased spouse or civil partner's NIC record, not the claimant's.
• Category D - This is non-contributory and is paid to some individuals over age 80, subject to certain conditions.

Required NI contribution record

An individual's entitlement to Basic State Pension is based on their NICs and NI credits. The amount of Basic State Pension an individual receives is dependent on the number of qualifying years they have.

Voluntary NICs could be paid to fill a gap in an individual's NI record.

It's also sometimes possible to get Basic State Pension based on the NI record of a current, former or deceased spouse or civil partner - separate conditions apply.

Individuals who reached State Pension age from 6 April 2010 to 5 April 2016
To get some Basic State Pension, an individual only needed to have one qualifying year - this could be based on NICs paid, treated as paid or credited.

30 qualifying years or credits were required to get the full Basic State Pension.

Individuals with less than 30 years get 1/30th of the full rate of Basic State Pension for each complete qualifying year or credit they've built up.

Age 80 or over
An individual with little or no entitlement to Basic State Pension based on their NI record may be entitled to a Category D Basic State Pension. This pension is non-contributory and is payable where an individual:

• is aged 80 or over and
• at the time of claim, is normally resident in Great Britain (England, Scotland or Wales) and has lived in Great Britain for a total of 10 years or more in any continuous period of 20 years after age 60, (Northern Ireland residents have separate arrangements) and
• has either no entitlement to any other State Pension, or receives State Pension which is less than the Category D pension amount.

Individuals reaching State Pension age after 5 April 2016
Anyone reaching State Pension age from 6 April 2016 won't be entitled to Basic State Pension - instead they will receive the New State Pension.

The amount of any Basic State Pension (and any Additional State Pension or Graduated Retirement Benefit) already accrued will be considered when working out their 'foundation amount' for the purposes of calculating New State Pension entitlement.

Qualifying years

The definition of a qualifying year depends on the period involved:

• Pre April 1975 - the total number of NICs paid (or credited) is divided by 50 to give the number of qualifying years in that period
• April 1975 to April 1978 - a qualifying year is a tax year in which a person received (or was treated as having received) earnings of at least 50 times the weekly lower earnings limit for the year
• From April 1978 - a qualifying year is a tax year in which a person received (or was treated as having received) earnings of at least 52 times the weekly lower earnings limit for the year

Using spouse or civil partner's NI record

If someone isn't entitled to the full Basic State Pension based on their own NIC record, they may be able to use their current, former or deceased spouse or civil partner's NI record to improve their entitlement, subject to certain conditions.

This could, in 2024/25 terms, provide a Basic State Pension of up to:

• £101.55 for a married person or civil partner, or
• £169.50 for a widow, widower, surviving civil partner or someone who is divorced or had their civil partnership dissolved.

But this can be a very complex area. Thankfully, GOV.UK has a tool to help determine if someone can improve their State Pension entitlement based on someone else's NI record.

State Second Pension (S2P)

The State Second Pension replaced SERPS from 6 April 2002 as the method to provide employees with an earnings related State Pension. It's paid in addition to any Basic State Pension and isn't dependent on eligibility for the Basic State Pension.

Both SERPS and S2P are commonly referred to as the Additional State Pension. S2P accrual ceased on 6 April 2016.

Eligibility

Only those who reached State Pension age before 6 April 2016 will ever receive Additional State Pension.

Those reaching State Pension age after 5 April 2016 will get the New State Pension - but the amount of any Basic and Additional State Pension built up before 6 April 2016 is taken into account when calculating their 'foundation amount' for the purposes of New State Pension entitlement.

The amount of S2P an individual accrued was based on the amount of Class 1 NICs paid (or treated as paid) on earnings between the lower earnings limit and the upper accrual point (or the upper earnings limit for tax years before 6 April 2009).

S2P provided a more generous pension than SERPS for employees who had low or moderate earnings. And it's introduction extended eligibility to include certain carers and individuals with long-term illness or disability.

Who was able to accrue S2P
The following were able to build up entitlement to S2P:

• Employees earning at least the lower earnings limit
• Carers, who had no earnings or earnings below the lower earnings limit, if they were:
  
  
  • receiving Child Benefit for children under age 12,
  • approved foster parents or carers, or
  • caring (for at least 20 hours per week) for someone who receives Attendance Allowance, Constant Attendance Allowance or the highest or middle rate care component of Disability Living Allowance.
  Before 6 April 2010, carers and those looking after young children could accrue S2P if they qualified for Home Responsibilities Protection.
• Disabled individuals who were entitled to Incapacity Benefit or Severe Disablement Allowance and the long-term sick and disabled who qualified for Employment and Support Allowance, provided they had worked and paid Class 1 NICs, or had been treated as paying them, for at least a tenth of their working life since 1978

Individuals didn't normally accrue any S2P for tax years in which they had contracted out of S2P. But if their earnings were under the low earnings threshold in a tax year, they were eligible for a top-up amount of S2P for that year.

Calculation of S2P

The calculation of the level of S2P accrued depended on the period(s) of accrual.

It should be noted that eligible individuals who earned less than the low earnings threshold were treated as if they had earnings equal to the low earnings threshold for the purpose of calculating S2P.

6 April 2002 to 5 April 2010
Initially there were three different accrual rates, each relating to different bands of earnings.

Where:

N = number of tax years by which tax year of employee's State Pension age precedes 2009/10. This matches the higher accrual rates which SERPS awarded during this period.
LEL = lower earnings limit
LET = low earnings threshold
HET = higher earnings threshold
UAP = upper accrual point
UEL = upper earnings limit

Each of these band earnings is revalued each year up to the last full tax year before State Pension age in line with the increase in national average earnings.

The revalued earnings of each band are totalled, the relevant percentages are then applied to each band and the resulting total is divided by the number of tax years from 1978/79 (or year of attaining age 16, if later) and the tax year before State Pension age, inclusive.

See below for an example calculation.

From 6 April 2010 to 5 April 2012
The 10% and 20% accrual bands were merged, resulting in the following levels of accrual:

From 6 April 2012 to 5 April 2016
Accrual became part flat rate and part earnings related as the 40% accrual band was replaced by a flat rate entitlement.

Flat rate accrual was £1.70 a week for tax year 2012/13, £1.75 a week for 2013/14, £1.77 a week for 2014/15 and £1.80 a week for 2015/16.

S2P ceased to accrue on 6 April 2016, when the old State Pension provision was replaced by the less complex New State Pension for those reaching State Pension age after 5 April 2016. Any S2P accrued up to 5 April 2016 was taken into account when calculating the individual's 'foundation amount' for the purposes of the New State Pension.

Contracting out
Individuals normally didn't accrue any S2P for tax years in which they were contracted out of S2P. But if they earned less than the low earnings threshold in a tax year, they accrued a top-up amount of S2P for that year.

State Pension forecast
Calculations could be very complex. Fortunately, individuals can ask for a forecast of their State Pension either by calling the Future Pension Centre on 0800 731 0175, online at GOV.UK, or using form BR19.

Inheriting a deceased spouse's S2P

A widow, widower or surviving civil partner may be able to inherit up to half of their late husband, wife or civil partner's S2P, provided they don't remarry or form a new civil partnership before they reach State Pension age. This only applies if the marriage or civil partnership began before 6 April 2016 and the deceased either:

• reached their State Pension age before 6 April 2016, or
• died before 6 April 2016 and would have reached State Pension age after that date.

GOV.UK has a tool to help determine if someone can improve their State Pension entitlement based on someone else's record.

There's a limit to the amount of Additional State Pension (S2P and SERPS) that any individual can get. The total of someone's own Additional State Pension and their inherited Additional State Pension for 2024/25 can't exceed £218.39 a week. The limit doesn't include any State Pension top up that may have been secured.

State Earnings Related Pension scheme (SERPS)

SERPS was established to provide employees with an earnings related State Pension, in addition to the Basic State Pension.

It was set up by the Social Security Pensions Act 1975 and began on 6 April 1978. On 6 April 2002, it was replaced by S2P.

Both the SERPS and S2P are commonly referred to as the Additional State Pension.

• Only those who reached State Pension age before 6 April 2016 will ever receive Additional State Pension
• Those reaching State Pension age after 5 April 2016, won't receive Additional State Pension - they'll get the New State Pension instead - but the amount of any Additional State Pension accrued counts towards their 'foundation amount', for the purposes of calculating New State Pension entitlement

Eligibility

Employees who paid Class 1 NICs on earnings between the lower earnings limit and the upper earnings limit in any tax year between 6 April 1978 and 5 April 2002 were able to build up a SERPS entitlement.

However, their entitlement is reduced (possibly to nothing) if they contracted out of SERPS during this time.

The self-employed didn't qualify as they don't pay Class 1 NICs.

Calculating SERPS entitlement

The calculation of SERPS depends on when State Pension age (SPA) is reached.

SPA before 6 April 1999
For those who reached SPA age before 6 April 1999, the SERPS entitlement was 1.25% of total revalued middle band earnings for each tax year from 6 April 1978 to the tax year before SPA was reached. This was subject to a maximum SERPS entitlement of 25% of the best 20 years' revalued middle band earnings. To calculate this:

• earnings up to the upper earnings limit for each qualifying year are revalued in line with national average earnings up to the tax year before reaching SPA
• the lower earnings limit for the tax year before SPA is then deducted from each years revalued earnings
• the resulting figures are added together and the total multiplied by 1.25% to give the SERPS entitlement

SPA on or after 6 April 1999
For those reaching SPA on or after 6 April 1999, SERPS entitlement was reduced by a number of measures:

• Instead of using an individual's best 20 years' revalued middle band earnings, their lifetime revalued earnings are used
• For each tax year, the lower earnings limit for that year is deducted from that year's middle band earnings and the difference is then revalued in line with national average earnings
• SERPS entitlement accrued from 6 April 1988 was gradually reduced from 25% to 20% of an individual's revalued earnings, based on when SPA is reached, as detailed in the following table

To illustrate this, if an individual reached SPA on 7 August 2008, the pre 1988 benefit is based on 25% of the revalued earnings, while the post 1988 benefit is based on 20.5%.

Inheriting a deceased spouse's State Earnings Related Pension

A widow or widower can, in some circumstances, claim a pension based on their husband's/wife's/civil partner's SERPS entitlement. This only applies if the marriage or civil partnership began before 6 April 2016 and the deceased either:

• reached their State Pension age before 6 April 2016, or
• died before 6 April 2016 and would have reached State Pension age after that date

GOV.UK has a tool to help determine if someone can improve their State Pension entitlement based on someone else's record - including Additional State Pension (SERPS and S2P).

Where someone can inherit some SERPS, the amount that can be claimed depends on when the husband, wife or civil partner reach State Pension age, as detailed in the table below:

There's a limit to the amount of Additional State Pension (SERPS and S2P) that any individual can get. The total of someone's own Additional State Pension and their inherited Additional State Pension for 2024/25 can't exceed £218.39 a week. The limit doesn't include any State Pension top up.

Graduated Retirement Benefit

The Graduated Retirement Benefit scheme was the first State scheme to provide earnings related pensions on top of the Basic State Pension. It ran from 1961 to 1975 and was replaced by the SERPS in April 1978.

Eligibility

Employees who were at least 18 and made graduated NICs accrued Graduated Retirement Benefit. It wasn't available to the self-employed.

But only those who reached State Pension age before 6 April 2016 will ever receive Graduated Retirement Benefit.

Those reaching State Pension age after 5 April 2016, won't receive any Graduated Retirement Benefit - as they'll get the New State Pension - but the amount of any Graduated Retirement Benefit accrued counts towards their 'foundation amount', for the purposes of calculating entitlement to the New State Pension.

Calculating Graduated Retirement Benefit

The amount of Graduated Retirement Benefit an individual gets (or accrued, for the purposes of the New State Pension 'foundation amount' calculation) depends on the number of units bought by the graduated NICs paid.

The number of units is calculated by dividing the graduated NICs by:

• 7.5 for men
• 9 for women who reached State Pension age before 6 April 2010
• 7.5 for women reaching State Pension age on or after 6 April 2010

The maximum number of units is 86 for a man and 72 for a woman.

The amount of weekly pension received is calculated by multiplying the number of units by the unit price, which is published by the government each year.

Graduated Retirement Benefit is likely to make up a very small proportion (if any) of an individual's State Pension.

Inheriting a deceased spouse's Graduated Retirement Benefit?

A widow, widower or civil partner can inherit half of their late partner's Graduated Retirement Benefit when they reach SPA if one of them reached SPA before 6 April 2016, or the deceased died before 6 April 2016.

Where both reached (or would have reached) SPA on or after 6 April 2016, it's possible to inherit half of any 'protected payment' the deceased had under the New State Pension (which could effectively include accrued Graduated Retirement Benefit) - but only if the marriage or civil partnership started before 6 April 2016.

Deferring State Pension

State Pension didn't have to be taken at SPA - it can be deferred indefinitely. For those who reached SPA before 6 April 2016, the deferred pension can be taken as either an increased income or a lump sum. This applies to basic State Pension, S2P, SERPS and Graduated Retirement Benefit.

• Increased income - If the claim for State Pension is deferred for at least five weeks, the original pension due at State Pension age will be increased by 1% for every five weeks deferred - equivalent to 10.4% for each full year deferred.
  
  For example, someone who reached State Pension age with a pension entitlement of £100 a week and choose to defer their State Pension by five years would earn an extra pension of £52 a week for the rest of their life.
• Lump sum - If the pension has been deferred for at least a year, the individual also has the option of taking a lump sum. The lump sum is based on the amount of weekly State Pension the individual would receive plus interest at 2% above the Bank of England base rate. When the State Pension is eventually claimed, it will be at the same rate as it would have been had it not been deferred.

State Pension already in payment
If someone is already receiving their State Pension, they can still take advantage of the deferral options by electing to give up their pension for a period. But this can only be done once.

Inheriting a deferred State Pension
If State Pension has been deferred, the deceased's widow, widower or civil partner will normally be able to inherit the extra pension - subject to certain conditions (see information on GOV.UK for more details). The payment options available depend on how long the State Pension has been deferred:

• A year or more - a choice of receiving the extra State Pension as either a lump sum, or as weekly payments.
• Between five weeks and a year - the extra State Pension can only be inherited as weekly payments.
• Less than five weeks - the extra State Pension for those weeks will become part of the deceased's estate.  

Taxation of State Pension

Although State Pension is a taxable benefit, tax is never deducted from it. Instead, the amount paid is added to any other income and if the total is more than the individual's personal tax allowance, the tax is normally deducted from the other income.

• Receiving another pension - HMRC will adjust the individual's tax code so that the tax paid includes the amount due on their State Pension. The pension income is taxed through the PAYE (Pay As You Earn) scheme.
• Only getting State Pension - the way tax is paid on the individual's State Pension depends on whether they're employed or not:
  
  
  • Employed - the individual's tax code is adjusted and tax is paid through the employer's PAYE scheme.
  • Not employed - the individual needs to pay any tax due through self-assessment by completing a tax return.

Lump sums 
Lump sum payments received as a result of deferring State Pension are taxed at the highest rate that would be applicable for the tax year, had the lump sum not been paid. For example, if basic rate tax was the highest rate an individual would have paid before they got their lump sum, the entire lump sum would be taxed at 20%, even if it would otherwise have taken them into the higher rate tax bracket.

If all other taxable income falls within the individual's personal allowance (ignoring any transferable marriage allowance), the lump sum can be paid tax free.

However, the lump sum remains taxable if the highest part of an individual’s income falls within the dividend allowance, personal savings allowance or starting rate for savings. The tax rate used for the lump sum would be the rate which would otherwise have been payable had the allowance not been available i.e. within the dividend allowance (20%, 40% or 45%), personal savings allowance (20% or 40%) and starting rate for savings (20%).

Any tax due in respect of the lump sum is deducted before the payment is made. As the payment could be made at any point during a tax year, the amount of tax paid might be incorrect. After the tax year end, HMRC will check the amount paid and either collect any underpayment or repay any overpayment.

For clarity, the Scottish tax bands and rates apply when calculating the tax due on State Pension income or lump sums for Scottish residents.

State Pension increases

Basic State Pension is increased each April in line by the highest of:

• the average percentage increase in UK earnings
• the percentage increase in the cost of living (CPI over the 12 months ending in the previous September)and
• 2.5%

This is the so-called 'triple lock' guarantee. For tax year 2022/23, the earnings element of the triple lock was suspended, following distortions to the earnings statistics as a result of the COVID-19 pandemic.

State Second Pension and SERPS increase in payment in line with increases in CPI.

Graduated Retirement Benefit increases each year according to the social security benefits up-rating order published by the DWP.