Deckchairs. Credit: Steve Forrest

Retirement and the state pension

Find out about retirement and state pensions.

Retirement: an introduction

For many years the UK state pension age has been 65 for men and 60 for women, with employers allowed to operate a default retirement age preventing employees from working past 65. However, this default retirement age has been abolished and state pension ages are being equalised at 65 by November 2018 and increasing to 66 in October 2020.

You can only receive your state pension when you reach your state pension age.

Work out your state pension age with the Directgov state pension age calculator.

The default retirement age was abolished on 1 October 2011. meaning that fixed retirement ages from employment should be a thing of the past and encouraging employees to work longer should they wish to. However it’s important to note that individual employers can still operate a fixed retirement age if they can “objectively justify” it.

If you decide to work longer and past your state pension age, and decide not to claim your state pension, you’ll be entitled to a larger state pension when you do stop working or can elect to claim it whilst still working. The same may apply to any occupational pension scheme benefits you have accrued if you work beyond the scheme’s usual retirement age. The longer you do not claim any personal pension then the fund, depending on investment returns and contributions, may increase and the older you are the better the annuity rates are likely to be.

Changing rules on retirement age

The state pension age for women has been increasing since April 2010. By November 2018 women and men will both qualify for a state pension at 65. Between 2018 and 2020 the state pension age for both men and women will rise to 66 and under current legislation the age for both men and women will reach 68 in 2046.

How to retire: next steps as you approach retirement

Four months before you reach state pension age you will receive a letter from the Pension Service. The letter will explain your pension options and you will need to respond to this if you want to claim your pension.

If you do not receive a letter, contact the Pension Service.

Where do we stand on the changing rules?

UNISON believes that the abolition of the default retirement age could benefit employees, the economy and employers, but we understand that not everyone wants to stay in work for longer and no one should be forced to continue working.

UNISON advises branches to monitor all retirement and dismissal cases and work on negotiating workplace retirement agreements that are fair and equal for all employees.

These agreements should make sure that:

  • employers do not abuse the abolition of the default retirement age to discriminate against older workers;
  • any retirement age set by an employer is based on genuine reasons and not an arbitrary cut-off point – in other words, it can be objectively justified;
  • any changes are negotiated with unions.

Next steps for UNISON reps

Make sure the UNISON members you represent understand that they have the right to be accompanied by a trade union representative if they are invited to a discussion with a manager about their retirement arrangements.

The state pension

Less than half of people retiring in the next few years are likely to get the full State Pension

The state department that administers the state pension, the Department for Work and Pensions (DWP), have said that fewer than half of those retiring between 2016 and 2020 will get the full amount of state pension and that “contracted-out” workers, most public service workers, will receive no more than £133 a week.

In response to a freedom of information request the DWP have said that only 45% of the 3.5 million people retiring between 2016 and 2020 will receive the full £150 (approx) a week.

Find out what you’ll get 

If you are one of the 2.5 million people reaching State Pension Age between April 2016 and August 2021 you can get a personalised written estimate of your state pension entitlement, plus information on anything you can do to enhance this. You can get this statement at https://www.gov.uk/state-pension-statement.

This service will eventually be extended out to all working-age people.

If you reach State Pension Age on or after the 6 April 2016

  • You will qualify for a new State Pension on the new rules and your existing National Insurance record will determine your “starting amount”.
  • If you’re starting amount is lower than the full new State Pension, you can increase the value of your state pension with further qualifying years up until you reach State Pension Age.
  • You can do this even if you already have 35 qualifying years at the 5 April 2016, although you will not be able to increase your pension to more than the maximum amount of the new State Pension.
  • Each further qualifying year after 6 April 2016 will increase your starting amount by 1/35th of the full new State Pension (up to the maximum level). For example, if the new State Pension is £150 a week this would result in each qualifying year being worth £4.29 in extra weekly state pension (i.e. 1/35th of £150).
  • Your starting amount cannot be any less than your current entitlement. In some cases individuals will have a bigger state pension under the current rules than they would under the new rules. In such scenarios the bigger entitlement will be protected but there will be no opportunity to earn extra state pension.

How do the new rules affect you? 

  • You are likely to pay more National Insurance from the 6 April 2016 if you are in a contracted-out pension scheme like the Local Government and NHS Pension Schemes
  • If you are relatively close to your State Pension Age your entitlement is very likely to be significantly short of the new State Pension amount of approximately £150 a week.
  • Worse still, you will not receive any of the Guaranteed Minimum Pension (GMP) increase that is currently payable by the State. Currently the State assumes responsibility for the pre April 1988 element and increases in excess of 3% on your post March 1988 GMP.
  • Many people will find however that over time they will get a higher State Pension than they would otherwise have received under the current rules.
  • The new State Pension will only apply to retirees from the 6 April 2016. Current pensioners will continue to receive their State Pension under the current rules.
  • The changes to the State Pension are supposed to be broadly cost neutral (i.e. the overall cost will remain broadly the same) so don’t be fooled, there will be many overall losers. 

Check your State Pension Age

Your State Pension Age is dependent on your date of birth. It is currently 65 for men and approximately 62 ½ for women. It will equalise at 65 for both men and women in November 2018.

The State Pension Age will then increase to 66 by October 2020, 67 by 2028 and 68 by 2046.

You can check your State Pension Age at https://www.gov.uk/calculate-state-pension.

Topping up your State Pension

One off opportunity to buy extra pension for pensioners and those reaching State Pension Age before 6 April 2016.

If you are to reach State Pension Age before the 6 April 2016 you will be offered an opportunity to potentially boost your state pension by up to £25 a week. The window for this State Pension Top-up Scheme will open on the 12 October 2015 and will close on the 5 April 2017.

This will be by paying Class 3A voluntary National Insurance contributions and you can elect to buy any extra weekly amount up to £25. The exact rate you will need to pay will depend on your age and how much extra pension you wish to purchase.

If potentially interested, go to the State Pension Top-Up Calculator to see how much you would need to pay at https://www.gov.uk/state-pension-topup.

Key points on National Insurance

  • You will only (with limited exceptions) be able to claim a new State Pension on your own National Insurance record. Hence, if you don’t pay National Insurance contributions yourself, you may well not qualify for a new State Pension.
  • The new State Pension will increase each year at least in line with earnings. UNISON is pressing for the higher of earnings, inflation or 2.5% per year to be adopted (i.e. the “Triple Lock” that currently applies to the Basic State Pension).
  • The rate of State Pension deferral will reduce from the 6 April 2016 from 10.4% a year to 5.8%. This rate reduction will only apply to those retiring from this date.

 

FAQs

Retirement

  • Will I receive the full state pension?

    The state department that administers the state pension, the Department for Work and Pensions (DWP), have said that fewer than half of those retiring between 2016 and 2020 will get the full amount of state pension and that “contracted-out” workers, most public service workers, will receive no more than £133 a week.

    In response to a freedom of information request the DWP have said that only 45% of the 3.5 million people retiring between 2016 and 2020 will receive the full £150 (approximately) a week.

    If you are a member of a public service pension scheme (i.e. local government, NHS Pension Schemes) you are currently contracted-out of the State Second Pension.

    The current state pension system is split into two; the Basic State Pension and the State Second Pension. Public service workers currently only earn an entitlement to the basic element which is currently £115.95 a week for someone with a full 30 year National Insurance record.

    You hence do not get a State Second Pension but do pay less National Insurance, as does your employer. More specifically you pay 1.4% less National Insurance on your weekly earnings between £155 and £770 and your employer saves 3.4% in comparison.

    With effect from the 6 April 2016 this will stop and you will no longer be contracted-out. You will therefore pay a higher rate of National Insurance contributions than currently.

    Ultimately if you are reasonably close to retirement you will not get what you may expect as your existing National Insurance record will determine the majority of your entitlement and you will simply pay more National Insurance for relatively little extra benefit. Younger workers will typically however accrue a bigger state pension over time than they would otherwise have done (albeit through paying more in National Insurance and having to wait longer to draw their state pension).

  • I am nearly at retirement age. What should I do next?

    You should investigate your options and decide if you want to retire now or continue working. Important factors to consider are your health, the pension available to you and whether you still enjoy working. 

  • Can I receive my state pension before I retire?

    No, you can only receive your state pension when you reach your official state pension age which will be 66 for both men and women from October 2020. You can retire before this point, but you will have to fund your own retirement.

  • Does the removal of the default retirement age mean I can choose my own later retirement date?

    Not necessarily because your employer can still force you to retire at 65 if they can objectively justify this.

  • Where can I find out more about the transitional arrangements for phasing out the default retirement age?

    The ACAS website includes a summary of the changes in legislation. Read more.

    The NIDirect website provides information on the changes in Northern Ireland. Read more

Resources