The amount of State Pension you receive is not guaranteed to be the maximum rate. Several factors can lead to a reduced payment, often resulting from gaps in your National Insurance (NI) record over your working life. The reasons differ slightly depending on whether you are eligible for the 'old' or 'new' State Pension, which is determined by when you reach State Pension age.
Insufficient National Insurance contributions
For those on the new State Pension (reached State Pension age on or after 6 April 2016), a key factor in receiving less is not having 35 qualifying years of National Insurance contributions. Your final State Pension amount is calculated based on the number of qualifying years you have.
How qualifying years are calculated
A qualifying year is a tax year during which you were:
- Working and paid NI contributions.
- Receiving NI credits, for example, if you were unemployed, ill, or caring for someone.
- Paying voluntary NI contributions.
To receive any new State Pension at all, you must have at least 10 qualifying years. If you have between 10 and 34 years, you will receive a proportion of the full amount. Having fewer than 10 years means you are generally not eligible for the new State Pension.
The impact of 'contracting out'
If you were employed before 6 April 2016, a significant reason for a reduced State Pension is having been 'contracted out'. This was a system where you and your employer paid a lower rate of National Insurance. Instead, the money was invested into a workplace or private pension scheme, often called COPE (Contracted Out Pension Equivalent).
How contracting out affects your State Pension
- For the basic State Pension: Under the old system, being contracted out meant you did not build up entitlement to the Additional State Pension (SERPS or S2P) for that period. Instead, this portion of your pension was accumulated in your private scheme. Your basic State Pension was not affected.
- For the new State Pension: When the new flat-rate system was introduced in 2016, a deduction was made for any period you were contracted out. This is because your private pension is considered to have already provided an equivalent benefit. While this reduces your State Pension, your overall pension pot should not be negatively impacted as the money was being saved elsewhere.
The old versus the new State Pension rules
The rules for receiving a State Pension changed dramatically in April 2016. If you reached State Pension age before this date, you receive the 'old' basic State Pension, which requires a minimum of 30 qualifying years for the full amount. The amount could also be boosted by the Additional State Pension, which was earnings-related.
Comparison of Old vs. New State Pension entitlements
| Feature | Old State Pension (Reached State Pension Age Before April 2016) | New State Pension (Reached State Pension Age On/After April 2016) |
|---|---|---|
| Full qualifying years | 30 qualifying years | 35 qualifying years |
| Minimum qualifying years | At least 1 qualifying year for a pro-rata payment | At least 10 qualifying years for any payment |
| Tiered system | Comprised of Basic State Pension and Additional State Pension (SERPS/S2P) | Single-tier, flat-rate payment |
| Contracting out | Reduced or eliminated entitlement to the Additional State Pension | A deduction is made to reflect past periods of contracting out |
| Inheritance | Spouses/civil partners could inherit a portion of their partner's pension | Primarily based on your own NI record, though some rights can be inherited |
What to do if you have a reduced State Pension
1. Check your State Pension forecast
This is the most important step to understand your specific situation. The UK government's online service allows you to check your National Insurance record and get a forecast of your State Pension. It will show you any gaps and explain how they affect your potential income.
2. Pay voluntary National Insurance contributions
If your forecast shows gaps in your record, you may be able to pay voluntary NI contributions to increase your qualifying years. This can be a cost-effective way to boost your entitlement, but you should check with the Future Pension Centre first to confirm it will increase your State Pension amount and is worthwhile. The deadline for paying for older gaps (between tax years 2006-07 and 2017-18) was extended to 5 April 2025.
3. Claim National Insurance credits
In some cases, you may be entitled to NI credits for periods where you were not working, such as when you were caring for a child under 12 or receiving certain benefits. Check your eligibility for credits, as they can help fill gaps in your record for free.
4. Claim Pension Credit
If you have already reached State Pension age and are on a low income, Pension Credit could top up your weekly income. It is important to note that if you are eligible for Pension Credit, paying voluntary NI contributions may not be beneficial as your Pension Credit may be reduced as your State Pension increases.
Conclusion
A reduced State Pension is not an uncommon issue and can arise from a number of historical and personal circumstances. The most common reasons are insufficient National Insurance qualifying years, especially for those on the new State Pension, and having been 'contracted out' of the Additional State Pension before 2016. The best course of action is to obtain a personalised State Pension forecast from the government website to fully understand your individual record. This will allow you to explore options such as paying voluntary NI contributions or claiming credits to boost your entitlement for a more secure retirement.
For more information on your State Pension, you can visit the official UK government website at GOV.UK.
