As the cost of retirement rises, getting as much as you can from your state pension is more vital than ever.
A single person needs up to £31,300 for a moderate retirement, an increase of £8,000 in just one year, according to figures last week from industry body Pensions And Lifetime Savings Association.
The more you can cover with the state pension, the less you will have to save for yourself.
And after a lifetime of diligently paying National Insurance, it’s no wonder most people want to get their money’s worth.
But less than half of the 12 million people receiving the state pension receive the full rate of £203.85 a week, official figures show.
Follow Money Mail’s advice to maximize your state pension…
A single person now needs up to £31,300 for a moderate retirement, an increase of £8,000 in just one year.
1. Find out what you’ll get
The first step is to find out how much you can expect to receive from your state pension and when you can start claiming it. Then you can take action if you fall short.
Check your forecast by contacting the Government’s Future Pensions Center on 0800 731 0175 if you are under 66, or the Pensions Service for those over retirement age on 0800 731 7898. You can also access your forecast online at gov.uk/check-state- pension.
There are two types of state pension: the “basic” pension paid to people who reached state pension age before 6 April 2016, and the “new fixed rate” pension paid to those after that. date.
Anyone receiving the “basic” pension needed 30 years of National Insurance (NI) contributions to qualify for the full £156.20 a week. Those receiving the ‘new’ state pension need 35 years of contributions to get the full ‘flat rate’ amount – £203.85 a week.
These rates will increase by 8.5 per cent in April, to £169 and £221.20 respectively.
If you haven’t paid NI for enough years, you will receive less than this. However, once you know what you are missing, you can take action to top up your NI registration.
However, be aware that not everyone can get a full state pension, even if you paid NI for more years than necessary.
Those who were “contracted” out of the state pension by their employers are likely to receive less. Millions of people have spent at least a year contributing to a subcontracted pension, which is intended to replace part of their state pension.
Those who were subcontracted by their employer paid fewer IN contributions during those years. Instead, the money went toward his company pension.
Therefore, they receive a smaller sum from the State, but a larger sum from their occupational pensions.
Overall, they should be no worse off and some may be much better off thanks to the growth of their company pension plans over time. The outsourcing ended in 2016.
Shortfall: Less than half of the 12 million people receiving the state pension receive the full rate of £203.85 a week, official figures show.
2. Start filling in the gaps
You may be able to fill any gaps in your National Insurance record that prevent you from receiving a full state pension.
It does this by “purchasing” the missing NI contributions at a fixed rate. This is different to the NI contributions that employed workers make each month, known as Class 3 contributions, which are paid as a percentage of your income.
It costs £15.85 to buy a week’s worth, or around £824.20 a year’s worth between 2006 and 2016.
Taxpayers have until April 2025 to make the top-ups, after which it will no longer be possible to make these historic additional payments beyond the last six years.
Steve Webb, former pensions minister and now a partner at consultancy LCP, says the offer is “incredibly generous” and the vast majority would be pounds after four years and thousands of pounds in profits.
“If you find there are gaps, you should prioritize any of them between 2006 and 2016 before addressing the later years,” he says.
Currently £824.20 increases your state pension by £303 a year. That’s worth at least £6,060 over a 20-year retirement.
This rate will be frozen next fiscal year. Those who are self-employed typically pay the Class 2 NI rate. Buying a year’s worth costs just £163.80, but provides the same boost to the state pension.
If you have a partial year, for example where you worked for part of the year but didn’t pay enough NI to make it a qualifying year, then the price of filling that year will often be much cheaper than a year you missed entirely. .
Before making any payments, speak to the Future Pensions Center if you are under retirement age, or the Pensions Service if you are, and ask them to confirm which years you can cover and how much it would cost.
If you transfer the money without checking it first and miscalculate, you risk losing that money as HM Revenue & Customs will not always refund you.
3. Delay retirement
You can delay your state pension for a minimum of nine weeks and receive more money when it starts.
Under the system in place since 2016, your weekly stipend increases 1 percent for every nine weeks you defer it, adding up to 5.8 percent for each year you defer it.
Your state pension increases for every week you postpone it, as long as it is for at least nine weeks after you reach state pension age.
This means that those who stay in work until they are 70 and defer their state pension for four years need to save much less to achieve the same lifestyle.
Top-ups: You may be able to fill any gaps in your National Insurance record by ‘buying’ missing NI contributions at a fixed rate
4. Claim missing credits
Some gaps in your NI record can be covered by ‘credits’ and are likely to be claimed for free.
For example, during periods of unemployment or parenting years, you can accumulate credits without making NI contributions.
Some credits may be years old, such as the so-called ‘grandparent credit’. In this case, a parent receiving child benefit pays NI and can work because another family member is caring for a child under 12 years of age.
It does not have to be full-time care, but could include, for example, dropping you off at school or covering during school holidays.
However, there are limits for other credits, including those associated with child benefit, which can only go back three months.
5. Be careful with mistakes
Make sure you receive all the state pension you are entitled to.
The Department for Work and Pensions has been embroiled in a catalog of errors and in recent years it has emerged that it has miscalculated millions of pensions.
Last year, an analysis of official Labor Party documents found that up to one in ten pensioners received an average of £400 each.
The mistakes largely apply to women. In a major misstep, an estimated 210,000 mothers are missing out on up to £1.3bn of state pensions because credits for time spent at home caring for children or vulnerable people were not added to their NI records.
To check if you can make a claim, go to: tax.service.gov.uk/guidance/Check-if-you-are-eligible-to-apply-for-Home-Responsibilities-Protection
Have you topped up your state pension? If so, please contact j.beard@dailymail.co.uk
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