For more than 100 years, the State Pension has provided British retirees with a valuable guaranteed income. While it may not be enough to support your desired lifestyle during retirement, it will provide you with a regular, index-linked payment for the rest of your life.
This means it could provide you the bedrock of your retirement income, covering household bills while you can use your other pension wealth to pay for your dream lifestyle.
To be eligible for the State Pension, you must have made a certain number of years’ worth of National Insurance contributions (NICs). So, if you have gaps in your National Insurance record and don’t review your State Pension forecast, you could find that you aren’t eligible for the full amount when you eventually retire.
Thankfully, there are some steps you can take to reclaim your eligibility and ensure that you maximise your State Pension retirement income. Continue reading to find out how.
The State Pension is a retirement income supplied by the government
The new full State Pension is worth £203.85 a week, or £10,600 a year, as of the 2023/24 tax year. This value usually rises each year thanks to the triple lock, a guarantee that sees the State Pension rise in line with the highest of these three different measures:
- Inflation as measured by the Consumer Prices Index (CPI)
- Average wage growth for the year
This government guarantee ensures that inflation doesn’t erode the State Pension’s real-term value.
To be eligible for the full new State Pension, you must have a certain number of “qualifying years”. You need to have at least 10 qualifying years to be eligible for any State Pension. Meanwhile, if you have 35 qualifying years, you’ll typically be eligible for the full State Pension.
While you do accrue qualifying years by paying NICs through work, there are also other factors that allow you to claim credits, such as receiving some benefits or caring for a child.
If you retired before 2016, you’ll earn a maximum of £156.20 a week from the basic State Pension. Though, you can get a top up from the additional State Pension if you’re eligible.
How to ensure you’re maximising your State Pension income
Make up missed contributions
Even if you’ve worked all your life, there’s a chance you still have gaps in your NI record that could prevent you from receiving the new full State Pension.
These gaps could be a result of events such as:
- Being unable to work due to illnesses
- Working abroad and paying tax in another country
- Taking time off work to raise children.
Your first step is to check your State Pension forecast on the government website to find out how much you will be entitled to. If there are gaps in your record, you can start to consider your options for making up the difference.
For example, if you have cared (or care) for a family member under the age of 12, you may be able to claim “specified adult childcare credits”. These could boost your State Pension entitlement without costing you a penny.
Alternatively, it is possible to make voluntary NICs and “buy” additional years of State Pension.
You can typically only make up to six years of missed NICs, although until 31 July, you can also top up any contributions missed between April 2006 and 2016.
Generally, it costs £17.45 to top up a missing week of NI contributions, or £907.20 for a year. Paying voluntary NICs helps you to “buy” additional years and it can be a great way to boost your State Pension income.
For every year of additional contributions you make, your State Pension would increase by £303 a year. This equates to more than £6,000 over a 20-year retirement, not taking any future State Pension rises into account.
Delay your State Pension claim
You can also boost the value of the State Pension by deferring claiming it. In fact, it rises in value by 1% for every nine weeks you defer. This means that if you delay by a year, your payments will increase by 5.8% – an extra £614 a year.
If you receive other income, deferring your State Pension could help you reduce your Income Tax liability, as you may avoid being pushed into a higher tax bracket by this additional income.
Ensure you haven’t been underpaid
According to PensionsAge, £670 million of State Pension was underpaid during the 2022/23 tax year, in addition to £540 million in the previous tax year.
Pensioners receiving the basic State Pension should automatically get an increase to their pension when they turn 80 or their spouse or civil partner dies. There is also an increase available to those whose partner retired before 2008, though you need to apply for this.
If you’re already in receipt of the State Pension and you want to check whether you’ve been underpaid, or you wish to correct an existing underpayment, you should contact the Pensions Service through the government website.
When you supply your name, date of birth, NI number, and some other details, they should tell you whether you’re receiving less than you’re entitled to.
Speak with a financial adviser
Perhaps one of the most effective ways to ensure you’re maximising your State Pension is by working closely with a financial adviser.
We can review your NI record and establish the options for boosting your entitlement.
Please contact us via email at firstname.lastname@example.org or call 0115 933 8433 to find out how we could help.