Article

How do you qualify for the State Pension - and what kind of retirement will it provide?

The New State Pension is money from the government to help you afford retirement. In a recent survey, we discovered that many people do not understand how to qualify for the New State Pension. But even if you do qualify, what kind of lifestyle can you expect to maintain?

| 9 min read

We recently asked a cross section of the public about their attitudes to saving for retirement and a strong theme became apparent very quickly.* There is a lot of confusion about how you qualify for the State Pension and the kind of retirement it will provide. One in seven didn’t understand how you qualify for the State Pension at all.

However, most people understood that the State Pension is linked to your National Insurance (NI) record. As well as paying contributions from your salary, you also earn NI credits from the age of 16 if you are in full time education and when claiming certain working-age benefit such as Carers’ Allowance, Job Seekers’ Allowance and Universal Credit.

But if your earnings as an employee are less than £242 a week, or you are a self-employed person making a profit of less than £12,570 you do not automatically pay NI and therefore may not acquire credits towards the State Pension. You can find out more at this government website.

On average, those we surveyed thought you needed 24 years’ contributions and/or credits to qualify for a full State Pension.

  • 11% believed there was no minimum.
  • 45% of those aged between 35 and 55 think you need 20 years’ contributions or less.
  • 60% of millennials (27-42 year olds) think you can retire on a full State Pension in less than 25 years.
  • Those aged between 18 and 26 believe you can claim the full State Pension in 16 years on average.

How do you qualify for the New State Pension?

Only one in six (16%) of those surveyed got the answer right: you need at least 35 qualifying years of NI contributions to get the New State Pension in full. Here are a few examples of how this could apply to you:

  • If your National Insurance Records start after 6 April 2016 (which is when the New State Pension was introduced), you will need 35 qualifying years to receive the maximum allowance

  • However, if your NI records start before then, you’ll still need at least 35 years of qualifying contributions or credits to get the full amount, but you may need additional years to reach it if you were contracted out of the Additional State Pension (also known as being “contracted out of SERPS”)
  • The minimum state pension allowance requires at least 10 years of NI contributions. If you have less than this, you will not qualify for the State Pension at all

If you have between 10 and 35 years of qualifying contributions or credits, you get a proportion of the State Pension

How much is the New State Pension and what sort of retirement does it provide?

If you qualify for the full New State Pension, it will currently pay out £10,600 a year. 86% of our survey said they expect to be fully or partly reliant on their state pension.

It’s interesting to compare this to research from the University of Loughborough which revealed a very basic retirement lifestyle in 2023 will cost around £12,800 for a person living on their own or £19,900 for a couple. A moderate retirement will cost £23,300 for a single person or £34,000 for a couple. A comfortable retirement will cost a single person £37,300 and a couple £54,500.

So even if you qualify for the full New State Pension, you could struggle to achieve a basic retirement, although you could manage better as a retired couple who both qualified. Taking one of the examples above, if you only had 20 years’ NI contributions, you could expect to receive a state pension of just over £6,057 which wouldn’t provide much of a lifestyle at all.

How can you get more State Pension?

If you’re looking to increase the amount you’ll get from your state pension, you have until the end of July 2023 to make voluntary contributions to boost any gaps in your records from 2006 to 2022. So if your record has a gap (or gaps) in it from before 2006, you cannot cover this by additional payments.

After that date you will only be able make up any shortfall that occurred in the previous six tax years.

If you’d like to get an idea of how much to contribute to your pension over the years, calculators can be incredibly useful:

How do I check my National Insurance record?

In our survey, less than half of all consumers and almost six in ten millennials have never checked their National Insurance records or don’t understand the link between National Insurance payments and the State Pension.

You can rectify this by visiting the government website and visiting their ‘Check NI records’ page.

What else can you do to improve your retirement income?

Save! We will all have to take more responsibility for our own retirements and the best way to do that is to make sure we have enough money set aside to fund us through our third age. Indeed, 65% of those we spoke to are worried about being able to afford retirement, and 20% of retirees had carried on working or taken on a new job or ‘side hustle’ to pay their day-to-day bills.

There are four options available: pensions (such as a SIPP), individual savings accounts (ISAs), lifetime ISAs (LISAs), and general investment accounts (GIAs). Pensions, ISAs and LISAs all provide the potential for tax-free growth and this can be an important boost to long-term returns.

But by far the most tax efficient way to prepare for retirement is via pensions savings. Payments into your savings are generally tax free and all income and growth received within the account are also free of taxes. In the tax year 2023/24 most investors can contribute up to 100% of their income or £60,000 (whichever is the lower) and get tax relief of up to 45%.

Even if you’re not a taxpayer you can still contribute £2,880 into a pension and receive tax relief of £720 making a total contribution of £3,600. The younger you are the more chance you have of building the savings needed to fund your leisure years. Even saving small amounts at the start of your journey can build into a reasonable pot with the power of compound returns – the potential to earn growth on top of growth.

However, you cannot access the money in your pension pot until you turn 55, rising to 57 in 2028 and potentially higher in line with increases in the State Pension age. If you think you might need to access your wealth before then, an ISA gives you more freedom, although funding an ISA will probably be from taxed wealth so they don’t have as many tax benefits.

Where can you find help with your retirement plans?

There are free resources such as the government’s Money Helper website. But if you want something tailored to your situation, the Charles Stanley One Step Retirement Savings Plan offers a tailored financial plan using our expertise.

Each of our One Step Financial Plans provides guidance and streamlined advice around a commonly asked financial question for people with non-complex needs.

The Retirement Savings Plan can help you:

  • Figure out when you want to stop working and how much money you’ll need to support the lifestyle you want.
  • Create a savings and investment plan that makes the most of your tax-free allowances.
  • Take control of different pensions as well as any other savings and investments you may already have.
  • Make sure any existing plan is on track, and help you think about the best ways to close any funding gap should one arise.

Looking for more support with your pension saving? Check out our range of tools and services to help you prepare for retirement.

*Please note: Research carried out by Charles Stanley in partnership with Censuswide, 8-14 March 2023. Sampling 2,000 mass affluent investors defines as those with above-average salaries and with at least £1,000 in accessible cash/savings or those who have retired and who have more than £1000 in savings.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Calculator tools to help you

Use one of our calculators to answer your financial questions, such as how much money will you have for your retirement and will your estate be liable for inheritance tax?

See more

More insights

Article
What is pension lifestyling and should you be using it?
By Rob Morgan
Spokesperson & Chief Analyst
19 Feb 2024 | 6 min read
Article
6 tips on how to retire early
By Aaron Gibbs
Personal Finance Commentator
02 Jan 2024 | 8 min read
Article
ISA or pension? Here’s how both could rescue your retirement
By Russell Miles
Senior Personal Finance Commentator
28 Dec 2023 | 7 min read
Article
Six ways to pay less tax in retirement
By Rob Morgan
Spokesperson & Chief Analyst
05 Oct 2023 | 10 min read