The cornerstone of the UK State
system
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The Basic State Pension is the cornerstone of the UK's state
pension system. It provides a basic level of pension, rising year on
year with the rise in price inflation and is available to all those
who have paid a sufficient number of years of
National Insurance contributions. The pension is not related to
the level of your earnings over your lifetime. So no matter whether
you earn £10,000 per year or £100,000 per year provided you have
made a sufficient number of years of National Insurance
contributions you will get a full Basic State Pension, independent of
earnings.
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The aim of the Basic State Pension
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As might be implied from the name the Basic State Pension is not
enough for most people to live on, on its own. It is, by design, a
basic level of pension. It is very unlikely that the basic state
pension alone will provide enough income for people retiring today
to provide a comfortable retirement.
It should be noted that if the BSP is your only source of income
it may be possible that you are entitled to
further state benefits to enhance your income. However these
additional amounts, whilst helpful, will not provide enough
income to maintain an average persons lifestyle after retirement.
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Current and future levels of the
Basic State Pension
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The full Basic State Pension is currently £4,027.40 per year (i.e.
around £77.45 per week) for a single person and £6,437.60 per year (or
£123.80 per week) for a married couple. The exact amounts available
differ for different individuals but if you want to know exactly how the BSP is calculated then read on.
National average earnings are currently in the region of £25,000
per year. Therefore the Basic State Pension is capable of providing
approximately 16% (or around 1/6th) of salary at retirement for
somebody on an average salary. If this is your only source of
pension income then it is clear to see that the Basic State Pension
alone will not provide enough income to enable you to maintain your
current lifestyle.
The Basic State Pension increases year on year in line with
levels of price inflation. It is generally true that salaries
increase at a faster rate than prices and over long periods of time
this is nearly always true. Therefore it is a fact that the Basic
State Pension will provide less of a pension to individuals as a
percentage of their earnings at retirement as time goes on.
Click here to read more about this and the
impact it will have on your retirement planning.
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