Contributions of National Insurance(NI) are compulsory being charged on earnings from employment or profits from self-employment above certain minimum amounts. NI contributions will fund in part the National Health Service and provides protection against sickness and unemployment. Payment of enough contributions towards NI will entitle the member to receive a basic state pension at retirement.

The state pension will be paid in full if an individual has been credited with NI contributions for the majority of that individuals working life. However, a reduced state pension or possible no pension would be payable if insufficient NI contributions have been made.

To find out how much State Pension you are due to receive contact us and ask for a State Pension Assessment.

In terms of the retirement age, the state retirement pension is paid to people who reach the state pension age of 65 for men and 60 for women and who fulfill the conditions of the National Insurance contributions. The amount you receive is not affected by your income and savings but is taxable. As a result of article 119 of the Treaty of Rome and the European Court of Justice ruling in Barber v GRE (1990) concerning equalisation rules, Parliament has passed legislation to equalise the state retirement age at 65 for both men and women. Under section 126 of the Pensions Act 1995, this is to be phased in over ten years beginning on the 6 April 2010. No women born before 6 April 1950 will be affected by these changes. Those born after 5 April 1955 will attain pensionable age at 65 and there will be a sliding scale for women born between these dates. By submitting the form BR19, a members state pension rights can be determined in terms of the basic pension earned to date and projected basic pension at the retirement age, assuming continued future contributions. Where applicable this will include SERPS showing the amount of SERPS already earned and projection to retirement date. A lump sum valuation of SERPS can be obtained by submitting BR20 form.

Additional pensions

In 1978 the Government introduced SERPS as an earnings-related top-up to the basic state pension. SERPS has been financed by an increase in the National Insurance contributions made by both employees and employers. The benefits from SERPS have been significantly reduced for those employees retiring after the year 2000 as a result of Government legislation.

However, SERPS will be phased out and replaced with the state second pension. S2P started on the 6 April 2002 and it is the Government's intention that S2P will double the amount of those earning up to £9,000 a year would have received from the basic state pension and state earnings related pension scheme. As with SERPS, there will be an opportunity for members to contract out of S2P.

Contracting out

Instead of paying into the state earnings related pension scheme employees can join a contracted out occupational pension scheme or take out an appropriate personal pension (APP) which are called protected rights benefits. A contracted out occupational pension scheme will provide a pension income at retirement related to earnings if operated as a final salary pension, or a pension income related to the member's fund value if operated as a contracted out money purchase scheme.

The member and employer will pay lower National Insurance contributions than if they had not contracted out. An APP will provide a pension income at retirement linked to the members fund value, this being the sum of the contributions made and investment return. An employee contracting out by way of an appropriate personal pension will pay NI contributions in full.

Effective from 6 April 2005, Protected rights benefits in payment do not need to increase each year by either 3% or LPI when it is paid. From 6 April 2006, Pension Simplification alters the way the proceeds from the protected rights portion can be taken. As a result a tax free lump sum of 25% can be taken and the remainder must purchase an annuity to provide an income from the age of 55. 

Pension Sharing

It is important to remember that the state basic pension cannot be subject to pension sharing and the former spouse will have to apply directly to the Benefits Agency to amend the members state basic pension benefits payable at the state pension age.

As the result of divorce or nullity and the making of a pension sharing order, the government wants to ensure that the safeguarded part of the pension credit are securely protected and applied for their intended purpose of providing an income at retirement.

On divorce an individual will have to rely on a pension sharing order to claim benefits from the state earnings related pension scheme. The statement can be requested to forecast expected basic pension plus SERPS based upon contributions made to date and likely future contributions.

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