The basic State Pension is a social security benefit paid by the government to people who have reached the state pension age. It is not based on your National Insurance contributions but on your residency status in the UK. You may be eligible for the basic State Pension if you are:
-A man born on or after 6 April 1951
-A woman born on or after 6 April 1953
-Have at least 10 years of National Insurance contributions
The amount of basic State Pension you will receive depends on your residency status and whether you have any gaps in your National Insurance contribution history. If you have lived and worked in the UK for most of your life, you will be entitled to the full amount of £134.25 per week (2020/21). If you have not been working or have had gaps in your employment history, you will get a reduced amount.
The New State Pension.
The new State Pension is a social security benefit paid by the government to people who reach state pension age on or after 6 April 2016. It is based on your National Insurance contributions and credited years (the number of years during which you paid National Insurance Contributions). You need at least 10 qualifying years to get any new State Pension and 35 qualifying years to get the full new State Pension amount of £175.20 per week (2020/21).
If you reached the state pension age before 6 April 2016, you’ll usually get the basic State Pension instead. However, if you have additional voluntary National Insurance contributions, you may be able to top up your basic State Pension to the new State Pension amount.
The State Pension top-up schemes.
There are two types of schemes that allow people to top up their state pension:
1) The Additional Voluntary Contribution (AVC) scheme lets employees make extra payments from their salary into their occupational pension scheme to increase their retirement income.
2) The Voluntary National Insurance Contributions (NICs) scheme lets self-employed individuals and employees who are not members of an occupational pension scheme make voluntary NICs payments to fill any gaps in their contribution history and boost their state pension entitlement.
Both schemes are open to anyone aged between 18 and the state pension age, as long as they’re paying National Insurance contributions. The amount you can contribute to the schemes depends on your age and earnings, but there is no upper limit.
How Much Should I Contribute to My National Pension Scheme?
The amount you contribute to your National Pension Scheme each month is calculated based on your earnings. You will pay 4% of your qualifying earnings, and your employer will pay 3% (if you’re an employee). If you’re self-employed, you’ll need to pay the full 7% contribution yourself.
What are the tax benefits of contributing to a National Pension Scheme?
There are two main tax benefits of contributing to a National Pension Scheme: firstly, you get tax relief on your contributions (up to a certain amount); secondly, your pension pot grows free of income tax and capital gains tax.
What are the maximum contributions I can make to my National Pension Scheme?
The maximum amount you can contribute to your National Pension Scheme Call Option each year is £40,000 (or 100% of your annual earnings, if less).