State Pension and National Insurance Credits
The UK State Pension is a regular payment from the government funded by National Insurance contributions. This guide explains how it works, what you need to qualify, and how National Insurance credits help build your entitlement.
The State Pension is a regular payment from the UK government to people who have reached State Pension age and have built up enough qualifying years through National Insurance (NI) contributions or NI credits. It forms the foundation of retirement income for most people in the UK, alongside any workplace pension or private savings.
The current system, known as the new State Pension, applies to people who reached State Pension age on or after 6 April 2016.
How Much Is the State Pension?
The full new State Pension for the 2025/26 tax year is £230.25 per week (approximately £11,973 per year). This amount increases each year under the triple lock, which guarantees a rise by the highest of:
- Average earnings growth
- Consumer Price Index (CPI) inflation
- 2.5%
Not everyone receives the full amount. Your State Pension is based on the number of qualifying years on your National Insurance record.
| Qualifying Years | State Pension |
|---|---|
| 35 years | Full pension (£230.25/week in 2025/26) |
| 10 to 34 years | Proportional amount |
| Fewer than 10 years | No State Pension entitlement |
Example
A person with 28 qualifying years would receive: (28 / 35) x £230.25 = £184.20 per week.
State Pension Age
The State Pension age is currently 66 for both men and women. It is scheduled to increase to:
- 67 between 2026 and 2028
- 68 at a date to be confirmed (the government reviews this periodically)
You can check your own State Pension age on the GOV.UK State Pension age calculator.
Qualifying Years and National Insurance
A qualifying year is a tax year (6 April to 5 April) in which you have paid or been credited with enough National Insurance contributions. You build qualifying years by:
Paying National Insurance Contributions
- Class 1 NI — Paid by employees earning above the Lower Earnings Limit (LEL), currently £6,396 per year. Contributions are deducted automatically through payroll
- Class 2 NI — Paid by self-employed people with profits above the Small Profits Threshold (£6,725 per year)
- Class 3 NI (voluntary) — Paid to fill gaps in your record. The current rate is £17.45 per week
National Insurance Credits
NI credits are awarded automatically in certain circumstances to protect your State Pension record when you are not working or earning enough to pay contributions:
| Credit Type | Who Receives It |
|---|---|
| Child Benefit | A parent (or carer) claiming Child Benefit for a child under 12 |
| Jobseeker’s Allowance | People actively seeking work and claiming JSA |
| Employment and Support Allowance | People unable to work due to illness or disability |
| Universal Credit | People claiming UC (subject to conditions) |
| Carer’s Allowance | People caring for someone at least 35 hours per week |
| Jury service | Time spent on jury duty |
| Starting credits | Automatically awarded for the tax years in which you turn 16, 17, and 18 |
NI credits count the same as paid contributions for State Pension purposes. They are particularly important for people who take time out of employment to raise children, care for relatives, or deal with health issues.
Grandparent Credits
If a parent returns to work and no longer claims Child Benefit themselves, they can transfer their NI credit to a grandparent (or other family member) who provides childcare. This is done by applying to HMRC using form CA9176.
Checking Your State Pension Forecast
You can check your State Pension forecast online at GOV.UK. The forecast shows:
- How much State Pension you are currently on track to receive
- When you can claim it
- How you might be able to increase it (e.g. by filling gaps in your NI record)
Checking your forecast regularly helps you plan your retirement income alongside any workplace pension savings.
Filling Gaps in Your NI Record
If you have gaps in your NI record, you can usually pay voluntary Class 3 contributions to fill them. Key rules:
- You can normally go back up to 6 years to fill gaps
- Special transitional rules have extended this deadline for some people (check GOV.UK for current deadlines)
- Not all gaps are worth filling — if you already have 35 qualifying years, additional years do not increase your pension
- The cost of filling a gap (currently £907.40 for a full year of Class 3) is usually far less than the additional pension you receive over your lifetime
It is worth checking your forecast before paying voluntary contributions to confirm that the extra year will actually increase your pension.
Deferring Your State Pension
You do not have to claim the State Pension as soon as you reach State Pension age. If you defer, your pension increases by 1% for every 9 weeks of deferral, equivalent to approximately 5.8% per year.
| Deferral Period | Pension Increase |
|---|---|
| 1 year | Approximately 5.8% |
| 2 years | Approximately 11.6% |
| 5 years | Approximately 29% |
Deferral can be beneficial if you are still working and would pay higher-rate tax on the pension income, or if you expect to live well beyond average life expectancy.
The increased pension is paid for life, so the longer you live, the more you benefit from deferral.
State Pension and Tax
The State Pension is taxable income, but it is paid gross (without tax deducted). If your total income (including State Pension, workplace pension, and any employment or self-employment income) exceeds the Personal Allowance (£12,570 for 2025/26), HMRC collects the tax through:
- Adjusting your tax code if you have other PAYE income
- Self-assessment if you are self-employed or have other untaxed income
The State Pension alone at the full rate (£11,973) is below the Personal Allowance, so if it is your only income, no tax is due.
State Pension for Business Owners
If you run a limited company and pay yourself a combination of salary and dividends:
- Salary at or above the LEL (£6,396) but below the Primary Threshold (£12,570) — You build qualifying years without actually paying NI contributions (because NI is only charged above the Primary Threshold, but you receive credit above the LEL)
- Dividends do not count towards National Insurance and do not build State Pension entitlement
- If your salary is below the LEL, you are not building qualifying years unless you receive NI credits from another source
This is a common tax planning consideration for owner-directors. Many accountants recommend setting the salary at a level that secures a qualifying year without triggering NI charges.
State Pension vs Workplace Pension
| Feature | State Pension | Workplace Pension |
|---|---|---|
| Funded by | National Insurance contributions | Employer and employee contributions |
| Amount | Fixed (up to £230.25/week in 2025/26) | Depends on contributions and investment returns |
| Flexibility | None — fixed payment rules | Various drawdown and annuity options |
| Tax-free lump sum | No | Yes — usually 25% can be taken tax-free |
| Inheritance | Limited surviving spouse/civil partner provisions | Can be passed to beneficiaries |
| Age of access | State Pension age (currently 66) | Currently from age 55 (rising to 57 in 2028) |
Most people need both the State Pension and a workplace pension (plus personal savings) to maintain their living standard in retirement.
Surviving Spouse or Civil Partner
If your spouse or civil partner dies:
- You may be able to inherit some of their additional State Pension or protected payment if they had a State Pension entitlement built up before 6 April 2016
- Under the new State Pension rules, you cannot inherit the basic new State Pension itself
- Bereavement Support Payment may be available as a separate benefit
The inheritance rules are complex and depend on when both partners reached State Pension age. Check GOV.UK or contact the Pension Service for specific guidance.