If you’re looking at the pros and cons of workplace pensions (spoiler: there’s lots of pros), you’ll want to know if having a workplace pension will affect your State Pension.
It’s unlikely to. Your workplace pension savings do not usually affect your State Pension.
Workplace pensions and the State Pension are two separate ways of saving for retirement.
Let’s look at the difference between workplace pensions and the State Pension.
How do workplace pensions work?
Workplace pensions are provided through your job and different types of pensions can be offered. NOW: Pensions is a Master Trust scheme that supports automatic enrolment.
Automatic enrolment is a UK government initiative to help more people save for their retirement, with their employer’s help. You get auto enrolled into your workplace pension scheme by your employer.
- Your employer puts you into a workplace pension scheme.
- You pay contributions to build up pension savings.
- Your employer pays contributions too. This is extra money to your normal salary.
- If you pay tax, you get tax relief on your pension contributions, which means more money goes into your pension.
- Your pension savings are invested to help them grow.
- From the age of 55 onwards you can use the savings you’ve built up in the Scheme to provide retirement benefits.
When can I get my workplace pension?
Most workplace pension schemes set an age when you can take your pension. You don’t actually have to retire to take your pension savings. If you have a workplace pension with NOW: Pensions, you can start to take your savings any time after you reach age 55.
We’ll normally use your State Pension age as your planned retirement age – the age you plan to retire at. We explain State Pension age below.
Tell us if you want to retire earlier or later than your State Pension age. Your planned retirement age affects when we begin to switch your savings from ‘growth’ investments (designed to help your pension savings grow over the long term) to ‘protection’ investments (designed to protect the value of your pension savings before you turn them into retirement income).
How much workplace pension will I get?
The value of your pension savings depends on, among other things:
- how much has been paid in
- how the money has been invested
- the charges you pay for your pension provider to manage your savings
- when you decide to take your pension savings.
The earlier you retire, the smaller your pension savings are likely to be. You and your employer will have paid in fewer contributions and your savings will have had less time to grow. Also, because you’re retiring early, the income from your pension savings may need to last longer than if you’d retired later.
- Check how much income you’ll need each year in retirement with the Retirement Living Standards
How does the State Pension work?
The State Pension is a benefit you can qualify for by building up a number of qualifying years of National Insurance credits. You can build up National Insurance credits by working and paying tax. You are also entitled to National Insurance credits for other reasons, for example if you claim benefits due to ill health or unemployment, are on maternity, paternity or adoption pay, or looking after a child under 12.
- See a full list of who can claim National Insurance credits
Once you have built up enough National Insurance credits, you’ll be entitled to receive the State Pension when you reach the State Pension age.
When can I get my State Pension?
You can start claiming your State Pension is when you reach State Pension age. Your State Pension age depends on when you were born.
For people reaching State Pension age today, it’s age 66 for both women and men. If you were born after 5 April 1960, there’s a phased increase in State Pension age to 67, and then 68.
To check your State Pension age, use the State Pension calculator at GOV.UK.
Remember, you can keep working past your State Pension age and still receive your State Pension.
How much State Pension will I get?
Your State Pension is based on how many qualifying years of National Insurance contributions you have.
You’ll usually need at least 10 qualifying years on your National Insurance record to get any State Pension. You’ll need 35 qualifying years to get the full State Pension. You’ll get a proportion of the State Pension if you have between 10 and 35 qualifying years.
You can pay voluntary National Insurance contributions to fill up gaps in your record and allow you to receive the full State Pension.
If you have under 10 years of National Insurance contributions, you may receive pension credits – a benefit designed to ensure you have a minimum level of income once you reach State Pension age.
- The full State Pension is currently £185.15 per week
- The full basic State Pension is £141.85 per week.
- If you reached State Pension age before 6 April 2016, you’ll get a different amount under the basic State Pension rules.
You don’t pay National Insurance contributions on State Pension payments.
When your workplace pension might affect your State Pension
- There is a group of people whose workplace pensions may affect their State Pension. But this only affects people eligible for The Additional State Pension.
This is because some workplace pension schemes used to let you pay lower National Insurance contributions in exchange for paying into certain types of the pension schemes which ‘contracted out’ of the Additional State Pension.
You can ask your workplace pension provider if you’ve been contracted out in the past. NOW: Pensions savings are not affected by contracting out.