What's included in the State Pension

Basic State Pension - which is dependent on the number of qualifying years you have earned over your working life. Qualifying years are based on the NI contributions you have paid, been treated as having paid or been credited with. If you do not have enough, you may be able to pay some extra contributions to top up your payments and thus receive closer to a full Basic State Pension.
Your working life - this is the period over which you have to meet the contribution conditions for the Basic State Pension. It begins from the start of the tax year in which you reach the age of 16 to the end of the tax year before the one in which you reach State Pension age.
Additional State Pension or State Second Pension (previously known as State Earnings Related Pension Scheme or SERPS) - depending on your individual circumstances, you may be entitled to Additional State Pension.
Graduated Retirement Benefit - which is based on any graduated NI contributions you paid between April 1961 and April 1975.
Long-term Incapacity Benefit Age Addition to State Pension - your State Pension will be automatically and permanently increased if you were getting long-term Incapacity Benefit Age Addition at anytime within the period of 8 weeks ending on the day before you reach State Pension age. Your long-term Incapacity Benefit Age Addition will be reduced if you are getting any additional State Pension. This may mean no long-term Incapacity Benefit Age Addition is payable. The rate you get will be the same as that which is paid with your Incapacity Benefit.
Age Addition - this is currently 25p a week and is paid to anyone aged 80 or over on top of their State Pension.
Extra State Pension for dependants - you may be able to get extra State Pension for your husband or wife. Before 6 April 2003 you could get extra State Pension for any children you had responsibility for, or if someone else looked after children for you. If you were receiving this increase before 6 April 2003 it will continue to be paid. From 6 April 2003 provision for children is made through Child Tax Credits.

Contracting-out

You can opt to contract out of the State Second Pension (or 'S2P') which replaced SERPS in April 2002. If you do this the portion of your NI contributions that would have gone into S2P is directed into either your company pension scheme or your personal pension. Many members of company or occupational pensions schemes are contracted out of S2P and the value of their S2P replacement pension will depend on investment performance in the case of money purchase schemes. Final salary schemes match the S2P given up but these are much less common than they were.

If you have a personal pension this can be used to contract out of S2P. The value of the replacement pension will depend on investment performance. The decision to do this will depend on your age and earnings and older employees in particular may find it helpful to take independent financial advice on this issue to ensure they get best value for money.

Other entitlements

If you are a married woman and cannot get a full basic State Pension because you do not have enough qualifying years based on your own NI contributions, you may be able to get a State Pension based on your husband's NI contributions. You can only do this if he is already getting a basic State Pension and you are aged 60 or over. If you are a widow or widower, you may be able to get a basic State Pension based on your late husband's or late wife's NI contributions.
If you carry on working after claiming your State Pension, your earnings will not affect how much State Pension you get. But if you get an increase for a dependant, their earnings may affect how much increase you get for them.
If you put off claiming your State Pension when you reach State Pension age, you can earn extra State Pension. The weekly amount of your State Pension will be higher, but you will not get any State Pension for the weeks you put off claiming.
The Government has introduced a new choice for people who put off claiming their State Pension. After 6 April 2005 people may be able to get more extra weekly pension or the choice of a one-off taxable lump sum payment when they do finally claim. This change is designed to give people more choice in how and when they retire by making it more attractive to delay taking their State Pension.

More information is available from the government's website: www.thepensionservice.gov.uk.