Pensions in the UK

The State Pension

People claiming the State Pension

There were an estimated 12.95 million state pensioners in Great Britain in 2024/25. Around two thirds (8.57 million pensioners) were claiming the pre -2016 State Pension, while 4.38 million were new State Pension claimants.

The old State Pension

The ‘old’ State Pension refers to the contributory state retirement pension system in place for the following people who reached State Pension age before 6 April 2016:

• men born before 6 April 1951; and
• women born before 6 April 1953.

The old State Pension has two tiers:

• The basic State Pension (BSP) – a contributory flat-rate benefit to which people built entitlement on the basis of their national insurance (NI) record.
• The additional State Pension – this depended on the earnings or deemed earnings during a person’s working life since 1978. People built up entitlement through the State Earnings Related Pension Scheme (SERPS) between 1978 and 2002, and the State Second Pension (S2P) from 2002 onwards. It was possible to contract out into a private pension scheme that met set requirements, in return for which the employee (and their employer) paid a lower rate of NI.

The new State Pension

The new State Pension was introduced by the coalition government by the Pensions Act 2014. It applies to people who reached State Pension age on or after 6 April 2016.

The full rate of the new State Pension in 2024/25 is £221.20 a week, or £11,502 a year.

State pension age

From the 1940s until April 2010, State Pension Age (SPA) was 60 for women and 65 for men. The Pensions Act 1995 included provision to increase the SPA for women from 60 to 65 in stages between April 2010 and 2020, to bring it into line with that for men. As a result of additional legislation passed between 2007 and 2014, the SPA is due to rise for both men and women to 67 between 2026 and 2028 and to 68 between 2044 and 2046.

State pensions and the triple lock

The triple lock was announced by the coalition government in its first Budget after the 2010 election.

There is a statutory requirement to uprate both the basic and new State Pension every year at least in line with earnings, but the triple lock commitment goes beyond this to uprate the basic and new State Pension every year by the highest of earnings growth, inflation, or 2.5%.

The triple lock was implemented from the 2011/12 financial year and has been applied every year since, except for a temporary suspension in 2022/23 in response to volatile earnings growth following the coronavirus pandemic.

Pension Credit

Pension Credit is a means-tested benefit for people of State Pension age and over. In February 2024, 1.36 million households in Great Britain were receiving Pension Credit, of whom 1.18 million were single pensioners and 180,000 were pensioner couples.

Occupational and personal pensions

Types of scheme

In addition to the State Pension people might have one or more private pensions. These might be occupational pensions set up through a workplace or personal pensions people set up themselves. There are two main types of private pension schemes in the UK:

• Defined benefit (DB) schemes pay a promised pension based on factors, such as salary and length of service. A sponsor, usually an employer, guarantees the payment of the promised benefits. The pension provides an income for life and may include a lump sum.
• Defined contribution (DC) schemes provide a pot of money for retirement instead of a guaranteed pension. The value of the pension pot can increase or decrease depending on factors, including investment returns and contributions made.

In 2021 the workplace pension participation rate in the UK was 79% (22.6 million employees).

Trends

The proportion of employees with workplace pensions has increased steadily since 2012, when participation stood at around 47%. The increase was due to the introduction of automatic enrolment in October 2012. This requires UK employers to automatically enrol eligible employees into a qualifying workplace pension.

In 2023/24, 12.7 million were in receipt of a private pension, with the majority (95%) receiving a defined benefit pension or annuity (an insurance product which pays a guaranteed income). However, this is likely to change over time due to the increase in defined contribution pensions following the introduction of auto-enrolment.

Most employees in the public sector are enrolled into a defined benefit pension scheme. In the private sector, the majority of defined benefit schemes are closed to benefit accrual – meaning that no new pensions can be built up in the scheme. Most of the remaining schemes are closed to new members. The majority of private sector employees are saving into a defined contribution scheme.