The history of the UK state pension

The state pension provides a starting point for income during retirement, although many people are dependent on it. Understanding the history of the UK state pension helps explain why it plays such a central role today.

According to the Office for National Statistics, the state pension provides 75% of the total income for 1.2 million retired households.

In recent years, many changes have taken place. For example, these include retirement ages, the triple lock, and the shift from the old to the new.

However, if we look back further at the history of the UK state pension, we can see how it has evolved over time.

The early days

Before the 20th century, state support for the elderly was minimal. In the mid-14th century, lawmakers introduced the 'Poor Laws. This meant the law compelled parishes to help those in need, including the elderly.

Over time, welfare reforms, trade unions and guilds gradually took over responsibility. As a result, the system began to evolve.

Although the military established some special provisions, the state pension first appeared in the 19th century. However, not everyone could access it; only certain people or groups qualified. These included civil servants, injured soldiers, and clergymen.

Old Age Pension Act

A key moment in the history of the UK state pension came with the Old Age Pension Act 1908, which came into force on 1st January 1909. It provided a non-contributory pension of five shillings per week for those over 70 years of age.

However, to qualify for the pension, you had to meet specific criteria.

You must have been a British subject and resided in the UK for that period. Your annual income could not exceed £31 ten shillings. You needed to be of good character, and the authorities excluded you if you had served time in prison or if a recent drunkenness conviction stained your record.

This aimed to reduce poverty amongst the elderly and was a significant move towards state-supported welfare.

Widows, Orphans, and Old Age Contributory Pensions Act 1925

This marked the start of the first contributory state pension. This much wider‐reaching scheme targeted people earning less than £250 per year.

The employer and employee made contributions, and it was compulsory for low earners. However, it was more generous than the old age pension, paying almost double from age 65.

The Beveridge Report and National Insurance Act 1946

Another milestone in the history of the UK state pension was the 1942 Beveridge Report, which proposed a welfare state that included a universal state pension.

The government followed this with the National Insurance Act of 1946, which introduced a basic state pension for all citizens. Specifically, workers funded it through mandatory national insurance contributions.

The government set the pension ages at 60 for women and 65 for men and were aimed at providing a basic income for the elderly so they could avoid poverty.

Additional state pension

As the history of the UK state pension progressed, it became clear that the basic state pension alone was too low for many, and the government recognised this. As such, they introduced additional pensions.

In 1961, lawmakers added the graduated pension scheme and based its benefits on earnings. In 1978, the government replaced it with the state earnings-related pension scheme (SERPS).

SERPS was for employees based on a middle band of earnings. However, employees with occupational pension schemes had the option to contract out of SERPS.

If they exercised this option, they reduced their level of national insurance contributions.

In 2002, the government replaced SERPS with the State Second Pension (S2P). The aim of S2P was to provide additional pension benefits to lower earners, including specific carers and those with long-term illness or disability.

State pension age

Governments have adjusted the state pension age several times over the years. Consequently, today’s system looks very different.

1995 Pensions Act 

To begin with, this started plans to equalise the state pension age for men and women at 65. They planned to phase it in between 2010 and 2020.

2011 Pensions Act 

They accelerated the timetable and introduced equalisation at 65 in 2018. It also increased it to 66 by 2020.

2014 Pensions Act 

The government plans further increases, raising the pension age to 68 between 2044 and 2046.

The triple lock

In 2010, the government introduced a triple lock to the state pension. The idea was to guarantee that the pension would not lose value in real terms and would rise by at least the rate of inflation.

The three measures of the triple lock mean that the state pension will rise by whatever is the greater of 2.5%, average earnings, and inflation measured by the consumer price index.

The new state pension

The most recent chapter in the history of the UK state pension is the introduction of the new state pension for those retiring on or after 6th April 2016. The idea was to simplify the entire system and address any shortfalls.

Ultimately, the amount payable will depend on whether you contracted out before 2016, the number of qualifying years you have paid towards national insurance, and whether you paid into the additional state pension before 2016.

Get expert advice

Undoubtedly, significant changes have marked the history of the UK state pension since 1908. It has changed from being just a basic financial support to a comprehensive retirement safety net.

There will probably be more changes in the future, and these changes can, at times, be quite complex. As such, speaking to a financial advisor who can help you plan for your retirement is always a good idea.

Let Regulated Advice match you with a financial advisor for expert advice.