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MSE’s Academy of Money
MSE’s Academy of Money

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2.1 How far does the state pension go?

The figure is a photo of an older man having his hair cut in a barber’s shop.
Figure 3 As a pensioner you could be entitled to a lower price on many services

In 2024 The Pensions and Lifetime Savings Association (PLSA) estimated that a single person needed to spend around £14,000 a year for a minimum standard of living. Around £31,000 a year needed to be spent for a moderate lifestyle (PLSA, 2024). Consequently, a single pensioner, on the full ‘new’ state pension in 2024/25 of £11,502 has barely 80 percent of the cash needed for even a minimum standard of living. The position is even worse for those on the ‘old’ state pension. Certainly, anyone relying solely on the ‘old’ state pension will need to claim a means-tested top up. Means-tested retirement benefits can discourage saving for retirement because building up a small private pension simply reduces the amount of benefits that can be claimed.

The change to a flat-rate pension from April 2016, which is higher than the state basic pension under the ‘old’ scheme, is intended to ensure that fewer state pensioners fall short of the minimum income they need. As a result, fewer pensioners need to claim means-tested benefits and there will be less of a disincentive to saving for retirement.

If those on a state pension do find that their income is less than the minimum standards set out above, then the recourse is to claim pension credit. Unfortunately, large numbers of people entitled to pension credit do not claim it, with the result that they lose out on the additional income it provides, as well as access to other state benefits that come with it. A link is provided at the end of this session to further information about pension credit.

Activity 2 What is your expected state pension?

Timing: Allow approximately 10 minutes

Check your record of National Insurance Contributions. How many years of contributions do you expect to accumulate by the time you are entitled to receive the state pension? The government website YouGov [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] can help you check your years of contributions, as can this calculator provided by the Money Advice and Pensions Service.

To use this interactive functionality a free OU account is required. Sign in or register.
Interactive feature not available in single page view (see it in standard view).


Entitlement to the state pension is linked to your record of National Insurance Contributions (NICs). Currently 35 years of contributions are needed under the ‘new’ scheme that started in 2016 to get the full state pension. Note that credits are given for certain periods out of work, such as being ill, unemployed or caring for children.

Remember to take into account the years you may have been ‘contracted out’ of contributions towards a state pension. This commonly applies to those in occupational pension schemes provided by employers.

Even if you get the full ‘flat-rate’ state pension this currently (2024/25) amounts to an annual income of only £11,502. This is clearly not enough for a comfortable retirement.

Hopefully you will have an occupational or personal pension plan to add to what the state will provide. You will start to look at these next, starting with occupational schemes.