State Pension: Expert outlines criteria to qualify
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This figure comes from a 2020 survey by My Pension Expert, but help is at hand as the Pension Policy Institute (PPI) has published an updated guide to the UK’s pension system. The guidance sets out and details an “unbiased” explanation of how the UK pension system works with the aim to help Britons understand how it works and what they are entitled to. This version of the guidance provides people with the most up-to-date position on UK pensions and the future legislative changes to the system. The PPI states that its guide provides “non-political, independent comment and analysis” on the policies on pensions.
The group does say, however, that it should not be “used to make individual pension decisions”.
In the UK, the amount of state pension a person gets depends on how many ‘qualifying’ years of National Insurance payments they have made.
This includes National Insurance contributions that people have paid when they are working and contributions that are credited to them when they have been unable to work.
It also depends on a person’s age and gender.
The 68-page guide first explains the basics and that the UK pension system is split into three tiers.
Tier one is the state pension, tier two is the additional state pension and tier three is the private pension.
The independent educational research charity explained tier one as being a “pay as you go system” that redistributes the money paid throughout the population to “provide all individuals with the minimum standard of living”.
For tier one, the contributory pension flat rate is £185.15 a week for individuals who have had 35 qualifying years.
To access this people will also need a minimum of 10 qualifying years to qualify for any state pension.
Tier two provides individuals with an additional state pension which is more closely related to their earnings than the flat rate that those in tier one get..
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The additional state pension is also uprated by the Consumer Prices Index (CPI).
The annual increase in CPI was 3.1 percent to September 2021, which meant that the additional state pension increased in line with this in April 2021. This meant that the maximum amount of additional state pension increased from £180.31 in 2021 to £185.90 in 2022.
The guidance also highlighted that the Additional State Pension has been available in three guises.
These are the Graduated Retirement Benefit for between 1961 to 1975, State Earnings Related Pension Scheme from 1978 to 2002 and the State Second Pension which was from April 2002.
The group also included an extensive list of the financial support and benefits which people on the state pension may be eligible to claim.
The PPI noted as well that from April 2016 people were no longer able to accrue entitlement to the additional state pension or Savings Credit.
Tier three is private and includes workplace pensions and those that are not directly funded by the state.
Other private schemes include individual pension schemes, trust-based schemes, contract-based schemes, group personal pension schemes, and individual personal pension schemes.
There are several other schemes which fall under the private pension umbrella which are all highlighted and explained in the PPI’s guide.#
Further information in the guide includes how the contributions work for both personal and employers, how people can withdraw their pensions and the ways of withdrawing, the tax treatments of private pensions, and the annual allowance tapers.
According to the Office National Statistics (ONS) in April 2021 there were 22.6 million people who were part of a workplace pension scheme with millions more contributing to private pensions.
Currently, people in the UK can access their state pension at 66 years old, however, as people are living longer this is set to increase to 67 years between 2026-28.
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