In our conversations with clients it's not uncommon for them to underestimate the value of the State Pension. But in the current high inflationary and uncertain market environment, this guaranteed, index-linked income is an invaluable benefit and one that forms a significant part of an individual's future retirement income.
Whilst many of our clients have private pensions, either through employment or personal investment, everyone who qualifies will have access to a State Pension provided by the government. For those reaching State Pension age (currently age 66) after 6th April 2016, a full entitlement would equate to a guaranteed income of £185.15 each week (£9,627.80 a year), a figure that increases each year, with the triple lock guarantee, by the higher of national average earnings, the Consumer Prices Index (CPI) or 2.5%. At the time of writing the government hasn't confirmed whether they will honour the triple lock this year, but even so the uplift in pension will be significant.
To qualify for a full State Pension you will need to achieve a National Insurance (NI) record of 35 years, with a minimum of 10 years to be entitled to anything. Generally, your record is built up through working and paying NI, however you may be eligible to receive NI credits to cover any gaps in working due to childcare, illness or disability or periods of unemployment. You can check eligibility on the Gov.uk website here. It's worth noting that since April 2011 it's been possible for grandparents or other family members to receive what is known as Specified Adult Childcare credits if they're caring for a child under 12 while the parent is working.
Making Voluntary Contributions
If there are still some gaps in your record after any credits have been applied you have the option of making voluntary contributions. Usually it's only possible to pay for gaps for the previous six years, however, for men born after 5th April 1951 and women born after 5th April 1953, there is a window between now and the end of this tax year (5th April 2023) to pay for gaps between April 2006 and April 2016. After the end of the 2022-23 tax year, it will revert back to the limit of six years.
The cost to fill in gaps is between £3.15 per week and £15.85 per week depending on the class of contributions to be paid, but as the State Pension amount you'll be paid is raised by an extra £5.29 per week it's worth considering and likely to be good value for money. You can make voluntary contributions as a one off payment or by instalments.
State Pension Forecast
To make sure you are getting the most from your State Pension, it's essential that your entitlement is reviewed, that you claim any NI credits you might be eligible for, and that you consider whether it's necessary to make any voluntary contributions.
If you'd like to view your State Pension forecast and a copy of your NI record you can access it via the Government Gateway. The forecast tells you what State Pension has been accumulated to date and what NI credits will be required to receive the full entitlement.
If you're a client of Chesterton House, your Financial Planner will review and discuss this with you as part of your Plan, so if you'd like to know more give us a call or raise it at your next Progress Meeting.
In summary, the State Pension provides a valuable index-linked, guaranteed income that is likely to be a key part of your overall retirement plan. The window of opportunity for topping up your credits between now and April 2023 is worth investigating, as it could make a noticeable difference to the amount you receive when you reach retirement age.
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