As the State Pension marks its 75th anniversary this month, we take the opportunity to provide an overview of the way this vital state benefit works. From eligibility - to the different types of State Pension that exist - to the way it is taxable, we have it all explained in this article.

What is the State Pension?

The State Pension is a four weekly payment from the government which is based on your National Insurance contributions or credits. It’s separate to the pension you have with the Amey OS Pension Scheme and any other pensions you may have.

How does it work?

To receive your State Pension, you’ll need to claim it from the government once you reach your State Pension Age (SPA). The current SPA is 66 for both men and women but the government has confirmed it will rise to 67 by the end of 2028. If you’re unsure of your SPA, you can check it at gov.uk.

Once you have claimed your State Pension, it will be paid to you every four weeks. This will be a separate payment to any other pensions you receive.

If you don’t want to claim your State Pension once you reach your SPA, you can take it later. Your State Pension will automatically defer until you claim it, so you can take it when you’re ready. Deferring your State Pension could increase the payments you get when you decide to claim it. Any extra amount will be paid with your State Pension and is taxable depending on the amount of other income you have.

More information on deferring your State Pension is available at gov.uk.

Types of State Pension

From 6 April 2016, the government replaced the basic State Pension and the additional State Pension (often referred to as SERPS or S2P) with the new State Pension for people reaching SPA from that date. With the new State Pension, you can find out how much State Pension you’re projected to receive when you reach SPA. This is extremely useful information when it comes to retirement planning as knowing the potential amount you’d get every month makes it easier to determine how much more you’d need to save for retirement.

The type of State Pension you’ll be able to claim depends on your date of birth.

You’ll be eligible for the new State Pension if you are:

• a man born on or after 6th April 1951
• a woman born on or after 6th April 1953
  

If you were born before these dates, you’ll need to claim the basic State Pension. 

The new State Pension is paid as a single-tier, and the additional State Pension is not paid if you are eligible for the new State Pension. 

How much State Pension will I get?

The amount of new State Pension you’ll be able to get will depend on your National Insurance (NI) record.

You’ll usually need at least 10 qualifying years on your NI record to get any State Pension.

To claim the full amount of the new State Pension, which is currently £203.85 a week (2023-2024), you’ll need 35 years of NI contributions. You’ll get a proportion of the new State Pension if you have between 10 and 35 qualifying years. You may have gaps in your record because you haven’t paid NI contributions for a set amount of time because you were either:

• employed but had low earnings
• unemployed and were not claiming benefits
• self-employed but did not pay contributions because of small profits
• living or working outside the UK

Gaps in your record can mean you may not qualify for the full State Pension. However, you can pay for gaps in your NI record from the past 6 years. The deadline is 5 April each year. To claim for any missing years between 2006 and 2016, the deadline has been extended to 5 April 2025.

To see how much State Pension you could get, you can check your forecast at gov.uk.

Your forecast will tell you your SPA, and give an estimate of what you can expect to receive. This is a helpful planning tool.

Your State Pension forecast may also show an estimated Contracted Out Pension Equivalent (COPE) amount.

What is the Contracted Out Pension Equivalent (COPE)?

The estimated COPE amount on your State Pension forecast indicates the amount that would have been deducted from the additional State Pension which existed before the new State Pension was introduced in 2016.

This is not deducted from the new State Pension amount available to you. However, the government may provide the estimated COPE amount to you, to inform you that for a period of time, you have been contracted-out of the pre-2016 state pension arrangements and paid lower National Insurance (NI) contributions - in effect a form of tax relief and may be why such years don’t qualify as a full qualifying year.

You can find out more about COPE and contracting out at gov.uk. 

Is my State Pension taxed?

The State Pension is taxable, but is usually paid to you before any tax is taken. You receive it gross which means no tax is taken before it is paid to you.

You do, however, have to pay Income Tax but only once your total annual income is above your Personal Allowance. So if you have other income from Pensions or employment, any tax due may be accounted for there. For 2023-2024 the standard Personal Allowance is £12,570, you can check your Personal Allowance at gov.uk.

You pay tax on your total annual income above your Personal Allowance from all sources, including:

• your State Pension 
• your workplace pension 
• any earnings, for example if you are still working
• other pensions you are getting
• rental income

Although Income Tax is not taken directly from your State Pension, it will use up some or all of your tax-free personal allowance. You may want to contact HMRC to determine the tax implications when you receive your State Pension to avoid a tax bill at the end of the tax year.

If you need more information about your Personal Allowance and the tax you may need to pay, you will need to contact HMRC.

You can find out more information on the State Pension at Gov.uk or MoneyHelper.