Pension forecast: Do a better job of guessing your pension than Rachel Reeves

How much state pension will you receive, and when will you get it? Your pension forecast

Updated: 
Labour annual conference 2014

As Shadow Pensions Minister Rachel Reeves will tell you, the state pension is a complex business. She was a guest on LBC on radio, and when asked what the current state pension is, she came up with 'about £100'.

In reality, the basic state pension is £113.10 a week. But that's only a very small part of the story.

Because of the complex rules involved, there's a variety of things to add or subtract from this, so that currently a quarter of pensioners receive under £100 and a quarter receive £150 a week or more.

But what is your state pension forecast to be? And how can you find out?

The current system

At the moment the state pension comes in three parts: the basic state pension is £113.10 a week. However, to qualify for all of this you need to have been making national insurance contributions - or claim national insurance credits for the years you couldn't work - for at least 30 years.

If you fall short of this, the government will calculate a reduced pension depending on when you retire and the number of years of contributions you have built up.

The second part of the current system is the pension credit. Just to make life even more complex, this comes in two parts. The first is the guarantee credit. This can be claimed by anyone over the minimum age limit whose entire pension income is below £148.35 (or £226.50 for a couple).

The second is the savings credit - designed to reward people who saved a modest amount for retirement. To qualify, a single person needs to have income of between £120.35 a week and £190 a week, and couples should have income between £192 and £279 a week.

For every £1 you exceed the minimum threshold you get 60p of savings credit. You can earn up to £16.80 in extra income each week if you're single, and £20.70 for couples.

You can read more about the pension credit in our guide to pension credit.

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State second pension

The third part of the current system is the state second pension. This is only available to people who didn't 'contract out' of the system (which means they will have had a pension contribution from the state into a personal or workplace pension instead of building up an entitlement to the state second pension).

The amount you receive depends on your earnings (although you will also qualify if you haven't worked but have claimed certain care-related benefits). The maximum currently available is £163 a week - on top of your state pension.

There's also an additional quirk of the system if you haven't retired yet, but are set to retire before April 2016. A scheme starting in October 2015 will let people in this position pay a new class of voluntary national insurance contributions for an 18 month period, which will boost their state pension by up to £25 a week.

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The flat rate state pension

In April 2016, the flat rate state pension will be introduced, which should make things somewhat simpler. It will affect women born on or after 6 April 1953 or men born after 6 April 1951.

The level hasn't yet been set, but will be more than the standard amount of pension credit guarantee - so will be worth more than £148.40 a week - as long as you have 35 years of national insurance contributions or credits.

If you have fewer years than this, as long as you have ten years or more, you will receive a proportion of the pension.

The pension credit will still offer a safety net for those without enough contributions - but the savings portion of the credit will cease to exist. The state second pension will also come to an end.

People who have already been making national insurance contributions before 2016 will have a 'starting amount', which is either the amount you would have received under the current system, or the amount you would have received if the new flat rate had been in place throughout your working life - whichever is larger.

If you have contracted out of your state pension for a period, your flat rate entitlement will be lowered to reflect that.

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State pension age

When considering your income after the age of 65, you also have to contend with the changes in the state pension age. Since 2010 this has been rising.

The first stage of rises will see the state pension age for women increase to 65 by November 2018. After this date, the state pension age for both men and women will rise together, to reach 66 by October 2020, 67 by 2028 and 68 by 2036.

After this, the government will link rises to longevity - calculated so that on average people will spend a third of their lives in retirement. If you want more details about these changes and what they mean it's worth having a look at our guide to state pension age.

The government has a calculator, which will work out when you will receive your state pension, and the amount of pension you will be entitled to when you do.

However, it's worth bearing in mind that it hasn't been updated to reflect future possible rises associated with longevity, so if you are young, it is likely to be inaccurate.

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Forecast

You can also get a written state pension forecast. You can complete a form online and get an electronic forecast from the government website (although the systems haven't been properly updated, so if you were born between 6 April 1960 and 5 April 1969 you can't take advantage of this service).

If you fall into this category or you don't want your quote online you can visit the Future Pension Centre or call them on 0845 3000 168. They will let you either complete an interactive form online and get a forecast in the post - or they will send you a form to complete and post back to them

A forecast is an excellent starting point, and for those near to retirement can be relied upon as a decent indication of what you will get - and when you will start receiving it.

However, unfortunately, as always with the state pension, its worth revisiting your forecast each time the government makes a new announcement about state pensions. Because the one thing you can be sure of is that they are bound to move the goalposts again - and again - over the coming years.

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