The history of State Pensions
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State pensions are pensions paid by the
government to individuals. State pensions have been in existence in the UK since
the early 1900's when Lloyd George, the prime minister at the time,
introduced the very first state pension. At this time the amount of
pension was minimal and it was originally designed for the very
poor. The Lloyd George pension required no
contributions, was "means-tested"
(i.e. based upon how much money you have) and was payable from age
70. The system has changed since then including a change in the
retirement age to 65.
Today the state pension is more
substantial but it is unlikely to provide enough income to satisfy
the needs of an average person. As a result of this you will
probably have to have some other form of income in retirement and
for most people this will mean saving for an additional source of
pension.
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Who is entitled to a State Pension?
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The entitlement to a state pension is a relatively complicated
area and gets explained in more detail in other parts of the guide
(See the Basic State Pension section and the Additional Pension
section). The essential requirement however is that you have worked
in the UK at some point in your life and have paid national
insurance contributions (which are essentially just a form of
taxation) to the government.
Therefore many people in the UK will
qualify for some sort of state pension. Different people will
qualify for different amounts of pension depending on their
circumstances. If you want to know more then read the remainder of the
State Pensions guide.
If you do not qualify for a state pension and are on a low income
you may be entitled to alternative state benefits.
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Who pays for the State Pension?
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The money needed to pay state pensions comes from
taxation. Therefore everybody who works and whose income is
sufficiently high so as to pay tax will contribute towards the
expense. The
system operates on a
Pay As You Go (PAYG) basis. This means that no
state 'pension fund' actually exists. Money from taxation is collected one week
and paid out to pensioners the next. Therefore people who are
pensioners today have their pension paid for by people who are
working today. When the people who are working today come to
retirement their pensions will be paid (hopefully) by the people
working at that time. It is a common misunderstanding but you are
not saving for your own pension when you make national insurance
contributions instead you are paying for the current pensioners to
receive their pension. Read more about the
funding of
state pensions later in the guide.
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Tell a friend about
Essential Pensions. Send an automatic message to your friends
email account about the site.
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Get the FREE Pension calculators from Essential Pensions.
No money, no
registration, just include one line of HTML in your web page.
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Use our online calculator
to get an estimate of your basic state pension.
Its free and
simple to use you can even include it on your own website!
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If you have a pensions
related question then please let us
know.
If it's something other people
would find useful then we will post an answer in our Frequently Asked Question
(FAQ) area.
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Read the guide to
investment in the pensions guide. It explains what you need to
think about before investing for your retirement.
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