How does a state pension work?

Most people are aware that arranging a pension for when they retire from work is important – but some may not know how to contribute to one. Although many people currently have a private or company pension most will also have contributed to a State Pension.

A State Pension is tied to the National Insurance Contributions a person has made throughout their working life.
To gain the money, men need around 44 qualified years of service, while women require 39 – although this can change depending on decisions made by the government.

A qualifying year is a tax year where you have earned sufficient income to pay contributions, or are treated as having paid these - for example, through Jobseekers Allowance between employment periods. If you haven’t paid enough National Insurance Contributions because you have been looking after children or caring for someone long-term, you may be eligible for Home Responsibilities Protection. Depending on when you will reach state pension age, Home Responsibilities Protection may reduce the number of qualifying years you need to qualify for the basic State Pension.

Men are normally eligible to receive their pension payouts from the age of 65, with women able to claim from the age of 60 or 65 depending on when they were born. While how much money that can be claimed depends on the year when retirement age is met, although the age may be lower if the pension has been saved through a company or private firm.

When the time comes, the cash can be deposited into a bank, building society, National Savings scheme or Post Office account.
If you have been married or in a civil partnership you may be entitled to some basic State Pension through the National Insurance record of your spouse or civil partner.

The Pension Service can advise on a number or of related topics, so it could be useful to direct any questions you may have to one of their its advisors.

If you want to know more about pensions why not ask AnswerBank Business and Finance.