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Pensions Including State Pension

State Pension

State Pension age


Historically the State Pension age was 60 for women and 65 for men. This has changed.


It’s now between 65 and 66 for everyone, rising to 66 by 2020.


The State Pension age is due to increase to 67 between 2026 and 2028 and to 68 between 2044 and 2046, however the government has announced that the increase towards 68 will be brought forward to include those born on or after 6 April 1970.



Basic State Pension rate


For those who reached State Pension age before 6 April 2016, the maximum in 2020/21 is £134.25 per week.


In addition, there may be entitlement to earnings related State Second Pension (S2P) formerly State Earnings Related Pension Scheme (SERPS).


You needed 30 qualifying years for a full basic State Pension. A qualifying year is one where either sufficient national insurance was paid or was deemed to have been paid.



New State Pension rate


For those who reached State Pension age on or after 6 April 2016, the maximum in 2020/21 is £175.20 per week.


This figure will be reduced for those who have contracted out of the State Second Pension (S2P), formerly State Earnings Related Pension Scheme (SERPS), before 6 April 2016.


35 qualifying years are needed to receive the full New State Pension. A qualifying year is one where either sufficient national insurance has been paid (on earnings above a lower limit of £6,240 for this tax year) or deemed to have been paid.

Transitional rules apply for those who accrued State Pension before 6 April 2016.




Pensions

Tax relief on pension contributions


Tax relief 2020/21*

Net cost of £1,000 gross contribution 2020/21


Non-taxpayer (including children) and Scottish Starter rate

20%

£800


Scottish intermediate rate


21%*

£790

Scottish higher rate


41%*

£590

Scottish additional rate


46%*

£540

Basic rate taxpayer


20%

£800

Higher rate taxpayer


40%*

£600

Additional rate taxpayer


45%*

£550


* Any tax relief above basic rate is restricted to the amount of tax paid at that rate. This assumes no other taxable income.



Pension contribution limits


Relevant UK earnings (usually earnings from employment or self-employment)

Maximum personal or employee contribution for tax relief


£0 - £3,600


£3,600 £3,601 and over 100% of earnings


Annual allowance: £40,000.


A £4,000 money purchase annual allowance will apply for those who have flexibly accessed their pensions.


Tapered annual allowance: If your threshold income is over £200,000 then your annual allowance will be reduced by £1 for every £2 that your adjusted income is over £240,000; to a minimum annual allowance of £4,000.


Threshold income is, broadly, all taxable income plus salary sacrificed for pension contributions on or after 9 July 2015 minus personal or employee (not via salary sacrifice) pension contributions.


Adjusted income is, broadly, all taxable income plus employer pension contributions (including via salary sacrifice) plus some benefit accrual in defined benefit, e.g. final salary, pension schemes.



Lifetime Allowance is currently £1,073,100 in the 2020/21 tax year. If the value of pension rights exceeds the Lifetime Allowance on death, at retirement or at age 75, the excess could be taxed at up to 55%.

National Insurance contributions

Class 1 employed (2020/21)

Earnings per week Employee rate


£0 to £183 Nil


£183 to £962 12%


£962 and over 2%

Earnings per week


Employer rate


£0 to £183 Nil


£183 and over 13.8%


National Insurance applies to most earned income or benefits in kind. National Insurance rates may be different for certain employees, e.g. if employee is over the State Pension age.


No National Insurance paid by employers up to £962 for employees under 21 or apprentices under 25.


Self-employed and voluntary


Type of National Insurance contribution Tax rate 2020/21


Class 2 self-employed £3.05 per week


Class 2 small profits threshold £6,475 per annum


Class 3 voluntary £15.30 per week


Class 4 lower profits limit £9,500 per annum


Class 4 upper profits limit £50,000 per year


Class 4 rate between lower profits limit and upper profits limit 9%


Class 4 rate above upper profits limit 2%

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