Why most people don’t receive the full state pension
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11 June 2026
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The full new state pension is quoted as a flat rate £241.30 per week, or just over £12,500 a year, giving the impression that all pensioners with 35 or more qualifying years now get this. In practice, and over 10 years since the new system was introduced, many don’t.
The picture is more complex, mainly due to transitional rules introduced when the system was reformed. These transitional rules mean millions of people who reached state pension age on or after 6 April 2016 receive less, or in some cases, more than the headline rate.
The state pension is a vital underpinning of many people’s retirement income, so it is important to consider how these transitional rules might affect you.
A system still in transition
The ‘new’ system applies to people reaching state pension age on or after 6 April 2016, when the rules were overhauled for simplification and to move people to building up their state pension benefit based on their own national insurance (NI) record. The new payment is a single tier, removing the separate basic state pension and additional state pension (often called SERPS or the second state pension) going forward. But the move didn’t wipe the slate clean overnight and the old system continues for those who reached pension age before 6 April 2016.
To reflect that people reaching state pension age for some time will have built up most of their NI records under the previous system, transitional rules were brought in to make sure they do not lose out because of the changes.
When someone reaches state pension age now, a calculation compares:
- What they would have received under the old system, that is basic state pension based on NI rules then, plus any additional state pension they might have built up; and
- Their single tier pension under the new rules, based on their NI record and how many years they have towards the 35 now required.
Where someone had built up an entitlement to the additional state pension (SERPS etc) under the old system but hadn’t reached state pension age by 6 April 2016 to claim it, their starting amount might be over the headline full rate of £241.30 per week. Anything above the prevailing full flat rate is known as a ‘protected amount’.
Contracting out might mean a lower pension
But millions of people were also in schemes that were ‘contracted out’ of the additional state pension at some point in their working lives, in fact, the government estimates that this applies three quarters of people reaching state pension age between 2016 and 2036, as it was very common in large public sector schemes.
Contracting out meant they and their employer were paying lower rates of NI than other workers, or some of their NI contributions were used to fund a pension pot instead of the additional state pension for those years. To reflect that these workers were opted out of the additional state pension, Department for Work and Pensions (DWP) make a deduction from their ‘new’ entitlement under (ii) in the calculation detailed earlier in this article. This will be compared to figure (i) when calculating the starting amount of state pension under the transitional rules.
Although contracting out was abolished more than a decade ago, we’ll still see it continue to impact people’s state pension entitlements for around another 15 or 20 years. The amount of deduction is based on the length of time and earnings in the period of contracting out.
How many people get the full state pension?
The latest figures underline just how widespread the complexity is. According to the DWP, 5,208,000 people currently receive the new state pension, with just over one million of these receiving a protected payment. This indicates that 20% of people in the new regime receive more than the full headline rate of £241.30. At the other end of the spectrum, over 40% of people receiving the new state pension are receiving less than the full headline rate. This might be due to contracting out, or gaps in their own NI records.
Some people may have an opportunity to boost their state pension to the full amount if they have gaps in their record. The first thing to do is check your own NI record and see if it is possible to claim credits for missing or partial years. This might have been in a period of lower earnings, claiming means tested benefits or taking time to care for children or grandchildren.
Buying additional years through voluntary NI contributions is also possible, if someone has already checked for NI credits. But it’s not always possible to pay voluntary contributions to make up for those years in which you were contracted out. This can catch people out as contracted out years are often still be marked as ‘full year’ in an NI record, even though you’ll still face a reduction in lieu of the lower NI contributions paid in comparison to someone who was not contracted out. Voluntary contributions might be offered if you have partial or missing years since contracting out was abolished.
A nod to the future
While the system is gradually becoming simpler for younger generations, today’s retirees are still living with the legacy of two different pension regimes. Historic features of the old system, particularly contracting out, continue to shape outcomes for millions of pensioners.
For anyone approaching retirement, checking your state pension forecast and understanding your NI record is essential to avoid surprises, and to see if you can take any action.
Charlene Young: Senior Pensions and Savings Expert
Charlene Young is AJ Bell’s Senior Pensions and Savings Expert. She joined AJ Bell in 2014 from a wealth management firm where she worked with private clients and small businesses as a financial planner.
Charlene...
