State Pension
The State Pension Credit Act 2002 provided for the state pension credit, an additional benefit based on an individual or couple’s existing income. It guaranteed a minimum level of income through guarantee credit and provided an additional income for pensioners with relatively low incomes.
The Category A and B pension had an additional earnings-related element introduced in 1978 under the State Earnings-Related Pension Scheme (SERPS). This was replaced by the State Second Pension (S2P) in 2002. A person could contract out of this element, in which case revenue would make a refund into a contracted-out pension scheme of the individual’s choice. However, they would not be entitled to the additional pension from the state for the period in respect of which they had contracted out.
The entitlement to this additional pension was based on the proportion of income in excess of the lower income limit. The surpluses were then applied towards calculating the additional pension.
The State Second Pension provided a yearly earnings factor for certain categories of persons based on the lower earnings threshold (£14,700 in 2012), which was used as the basis for the annual rate of additional pension. It deemed individuals with less than the lower earnings limit but more than the lower earnings threshold as if they had earnings equal to the lower earnings limit, allowing certain categories of persons, such as registered carers and those entitled to child benefit, who would not otherwise qualify, to receive the additional pension.
Following certain further reforms, there were intentions to make the State Second Pension scheme a flat-rate scheme by 2030. Alternative proposals had been made to create a single-tier scheme to replace both the basic pension scheme and the S2P, SCRPS, and the means-tested pension credit, with the latter proposal favored by the Conservative-Liberal Democrat government.
As of 2014, the state pension age is 65 for men born before 6 December 1953, and between 60 and 65 for women born between 1950 and 1953. The women’s state pension age was set to increase to 65 between April 2016 and November 2018. The pension age for both men and women was set to increase to 66 by October 2020, with further increases to 67 and 68 planned for 2026-2036.
A person who wishes to stay working beyond the pension age may continue working without having to pay further national insurance contributions. It is possible to defer a state pension claim and receive an enhanced state pension when the claim is made. The default retirement age of 65 was abolished in 2011, and businesses need not fix a retirement age; an employer may set a justifiable retirement age if it can be justified in the circumstances.
From 2010 to 2011, the basic state pension was £97.65 per week for a single person and £156 for a couple. To receive the full pension, both men and women must have worked for 30 years.
Pension credit guarantees a minimum weekly income of £132.60 for single persons and £202.40 for couples, with an average payment of £67.11.
Where one or more members of a couple are of pensionable age, there are a number of options based on respective ages, contribution records of each, marital status, and other factors. Increases may apply if a person has a partner or other adult dependent.
If an adult dependent receives an earnings replacement benefit (generally welfare or other payments), there may not be an increase if the increase is the same or less than that earnings replacement benefit. If the increase exceeds the amount of the benefit, the difference is payable.
At a certain relatively minimum point, around £60 a week, the increase is not payable for adult dependents at all.
There is a special rate for married couples or those in civil partnerships where both are over retirement age and one has a defective contribution record. In this case, a married person may claim a pension based on their spouse’s contributions (Category B).
This pension is at the same rate as the adult dependents’ increase. The basic pension is flat rate, but those pensioners receive higher payments because they qualify for an additional state pension scheme and/or an occupational pension scheme.