Main facts about pensions in the UK

There are different types of pensions in the UK that people are eligible to.

State Pension is paid in two parts which is Basic Pension and Additional State Pension.

Basic State Pension is a regular payment from the Government and gives you a regular income when you reach State Pension age. It is a benefit paid at a flat rate and based on the number of qualifying years in which you paid National Insurance Contributions from your earnings or have been credited with them by the Government (if unemployed or claimed certain benefits).

A pro-rata pension is paid to someone with fewer qualifying years. If you are over 80, you will also get an "age addition" of 25p a week.

The earliest that you can claim the basic State Pension is when you reach State Pension age.

The age at which you can claim State Pension is changing. It is currently 65 for men. It is gradually increasing for women from 60 and should reach 65 by November 2018. It is proposed to increase age for both men and women to 66 by October 2020 and at least to 68 after that.

The full Basic State Pension is currently £110.15 a week (2013 – 2014). It increases every year and depends on average percentage growth in wages in Great Britain, the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI) or by 2.5%, by whichever is highest.

Men born after 5 April 1945 and women born after 5 April 1950 need 30 qualifying years for a full Basic State Pension. Men born before 6 April 1945 need 44 qualifying years for a full Basic State Pension, and women born before 6 April 1950 need 39 years. To get any State Pension, an individual needs 25 per cent of the qualifying years required for a full pension.

Individuals who have less qualifying years may choose to pay voluntary National Insurance contributions in order to boost their record for pension purpose.

State Pension can be claimed online and paid directly into your bank account once you are within 4 months of your State Pension age. You can claim your State Pension even past State Pension age and still continue working. It is also possible to postpone claiming your State Pension and get a higher pension or a lump sum when you do claim. It is know as "deferring".

In addition to the Basic State Pension you may get Additional State Pension (The State Second Pension or S2P). The State Second Pension, or S2P, was introduced in the UK by the Labour Government on 6 April 2002.

It is extra amount of money you could get with your Basic State Pension. It is based on the amount earned when working which is reflected in the amount you paid through National Insurance and whether you have claimed certain benefits. There is no fixed amount like Basic State Pension.

The Additional State Pension is paid together with your Basic State Pension. Once you have reached State Pension age and claiming Basic State Pension, you get Additional state Pension automatically unless you have contracted out of it.

You can only contract out if the company runs a contracted out pension scheme and you should check it with you employer.

You do not contribute to the Additional State Pension if you are a member of a contracted out workplace pension. It means that when you retire you either get reduced Additional State Pension or you do not get any of it.

If you are employed you may be offered such membership of your employer’s workplace pension scheme.

You will need to pay contributions and these will be deducted from you salary and paid into the scheme by your employer. These contributions are invested until you retire and your employer is likely to contribute to the scheme to add to your savings.

From October 2012 and by 2018, starting from the largest employers first, all employers must enrol their eligible workers into a workplace pension scheme provided that they:

  • Have not reached state pension age;
  • Are at least 22 years old;
  • Work in the UK under their contract and;
  • Earn more that a minimum amount a year (currently £9,440).

The earliest that you can have access to your pension is usually when you reach 55, unless you retire on grounds of ill health retirement. You will be able to take some as a cash lump sum and the rest in the form of pension.

The Government wants to encourage all workers to save for their retirement in as easy way as possible.  The employer must make all the arrangements and have to also pay a minimum contribution into the pension scheme for their eligible workers.

 

Services we offer

We are pleased to able to offer the following taxation based services: -

All taxation services are arranged on a fixed fee basis with the fee to be charged agreed in advance of any work being undertaken.

  • A General tax consultation and/or specific tax advice;
  • Tax planning for your general situation or for a specific transaction;
  • Registration for National Insurance and Unique Tax Reference numbers;
  • Preparation and submission of annual self-assessment returns;
  • Preparation and submission of return for overseas landlords;
  • Formation of UK and offshore companies in respect to an acquisition of the commercial property and administrative and accounting services for corporate entities.

For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email

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