The state pension, often called the "old age pension", is paid to people who have reached pension age, which is currently 60 for women and 65 for men.  However, contrary to popular belief, it is not paid to everyone, although everyone who is entitled to a full basic state pension gets the same amount. 

Eligibility is based on national insurance contributions (NICs), but another common misconception is that by paying NICs you are building up a  personal ‘pot’ of cash which will eventually be used to pay your own pension.  This is not the case. State pensions are funded on a pay-as-you-go basis; in other words the contributions of those in work fund the pensions of those who have already retired.  Essentially, by paying NICs you are earning the right to be paid a pension when you reach retirement age.

Who qualifies?

In order to qualify for a full basic state pension you need to have paid, or have been credited with, enough national insurance contributions. Men need 44 ‘qualifying years’ and women currently need 39 ‘qualifying years’, though this will change in 2012 (see Future changes to state pension below). 

A ‘qualifying year’ is a tax year during which you have made enough contributions on sufficient earnings to count towards your pension.

In certain circumstances you may receive national insurance ‘credits’ instead of paying contributions.  For example, if you are out of work but registered for Jobseekers Allowance; if you are sick or disabled; if you are caring for an elderly relative and receive Carer’s Allowance; or you are a man aged between 60 and 65 who is no longer working.

Low-paid workers who earn more than the ‘lower earnings limit’ (£90 a week in 2008/09) but less than the ‘earnings threshold’ (£105 a week) will not have to pay NICs, but they will be treated as though they have.  Technically these people are deemed to pay national insurance at 0%. 

Women who stay at home to bring up their children and receive Child Benefit may qualify for Home Responsibilities Protection, which reduces the number of qualifying years needed for a full state pension (see Guide to pensions for women).

If you do not have a full NIC record when you retire you will be entitled to a reduced state pension, provided you have at least ten qualifying years.