The State Pension certainly featured prominently at the recent General Election, with both the main parties pledging to honour the ‘triple lock’, which safeguards it against increases in the cost of living.
The belt and braces commitment means that the pension payment levels will rise annually by the greater of the inflation rate, the growth in average earnings, or 2.5%.
This could prove crucial for anyone with little or no other retirement income and is certainly better than a kick in the teeth even for those with a decent level of private pension provision or other savings.
This April, for example, because of recent high earnings growth, the annual increase was above inflation at 8.5% – from £203.85 a week to £221.20 a week (£11,502.40 a year). The previous April the increase was 10.1%, in line with inflation.
But it’s certainly not a given that you will receive the full State Pension amount, because much depends on the level of National Insurance (NI) contributions you have made.
Ignorance about this and about the State Pension generally is rife, with Scottish Widows research indicating that only around a third of the population is aware of what they will receive or when.*
So, it’s important to find out what you’re entitled to and to consider taking corrective action if you’re not on course to receive the full amount.
Furthermore, the issue needs to be addressed straight away because an important deadline looms next April.
How it works
Because the State Pension system was considered prohibitively complex, its rules underwent a major transformation in 2016.
Since then, men born after April 5th 1951 and women born after April 5th 1953 have not been able to build up an additional State Pension or to ‘contract out’ to achieve a higher private pension. But, instead, they receive an improved ‘single tier’ payment once they reach State Pension age.
Your personal State Pension age, (which you can check via Check your State Pension age – GOV.UK (www.gov.uk), depends on your date of birth, but it’s normally in your late 60s.
Around four months before you reach this milestone you should receive a letter from the Pension Service explaining how to claim the pension. If this hasn’t arrived with two months to go, ring the Pension Service on Tel: 0800 731 7898.
Anyone with 10 qualifying years of NI contributions will be entitled to some of this single tier pension. But to receive the full amount you need 35 qualifying years.
However, you can rectify NI shortfalls by buying back missing years. Most people should be able to do this themselves, although Chase de Vere is willing to give free guidance on the subject to clients’ employees.
You can currently buy back past years until 2006. But, with effect from April 5th 2025, you will only be able to go back to 2019. So, time is of the essence because the process isn’t quick and you may need to save up to make the necessary payments.
What you need to do
You can check your NI record to see if you are missing any years since 2006 via Check your National Insurance record – GOV.UK (www.gov.uk).
And you can check your State Pension forecast to see if you’re on track to get the full amount via Check your State Pension forecast – GOV.UK (www.gov.uk).
The next step is to establish whether you can plug any of the gaps for free if, for example, credits for benefits like Child Benefit or Career’s Credit haven’t been claimed. Useful guidance on this and some of the other more complex issues is provided by Martin Lewis via 7 May 2024: Important. Are you under age 73? (moneysavingexpert.com).
Then you need to decide whether it’s worth buying back any extra years. The case may be compelling if you’re near State Pension age and could still appeal if you are aged much over 45. But the younger you are the more time you have to earn qualifying NI years naturally by working.
If any employees of Chase de Vere clients would like free guidance in this area then please don’t hesitate to contact us.
*SOURCE. Scottish Widows
The information contained within this presentation is for guidance only and does not constitute advice which should be sought before taking any action or inaction.