Updated 11 April 2022
Two pension experts offer their simple but high-value tips on maximising your state pension – whatever age you might be now. How much money might you risk missing out on? Article by Nick Green.
How much state pension will you get? You may have heard that the current state pension is £164.35 per week – but that figure is the maximum. You’ll receive the maximum if your National Insurance (NI) record has enough qualifying years. But what if you don’t?
You may have gaps in your NI record if you haven’t always worked, have lived abroad or taken career breaks, or have had periods of low earnings when you didn’t pay NI contributions. This might reduce the amount of state pension you’ll receive.
You can get a state pension forecast on the government’s website. If this reveals that you’ll get less than the full amount, you may be able to fill in the gaps in your NI record by making voluntary NI contributions. This can in fact be a highly efficient use of your money, according to Steven Mason, chartered financial planner at Gilliland Neilson Brown.
‘Voluntary National Insurance contributions are an extremely cost effective way of increasing your retirement income,’ Steven explains. ‘The return on your money can be over 30 per cent per year, which is likely to be way more than any bank interest you may be earning.’ The state pension is also guaranteed for life and rises with inflation, making it hard to find any other kind of investment that can compete with it.
You may not be aware that there are other ways to fill gaps in your NI record, even if you’re not working or can’t afford to make voluntary contributions. ‘You may be able to qualify for National Insurance credits, which serve in place of contributions,’ says Steven. ‘You can get these for a number of reasons, such as caring for a child who is a family member, or being a carer for a sick or disabled person (which could also bring you a carer’s allowance). This doesn’t cost you anything and will boost your state pension.’
If you’re a stay-at-home parent who isn’t earning, then you might think it’s hard to build up the full state pension. To receive any state pension at all, you need a minimum of 10 years’ NI contributions or credits. However, you may be missing out on some of these credits.
Martin Joyce of Brierie Financial Planning has this top tip. ‘Do you claim child benefit? As well as bringing in extra money, it also gives you a National Insurance credit towards your state pension.’ However, he warns that some parents aren’t claiming this benefit due to their higher income level. ‘There’s a tax charge on child benefit if one of the claimants earns over £50,000, and if that person earns £60,000 or more then the charge completely cancels out the benefit. This means that parents in this situation might not bother claiming child benefit. After all, why claim a benefit that pays you nothing?’
That’s the trap, as Martin explains. ‘It doesn’t pay you nothing! It still gives the non-earning parent a National Insurance credit towards their state pension. If you don’t claim this credit, then you can lose entitlement to part of that pension. This is particularly important to remember if you’re a full-time parent, as you may not have any private pensions either.’
So if you are responsible for a child under 12, be sure to submit the claim form and tick the opt-out box to make sure you still get your NI credits.
As you can see, it’s possible to miss out on hundreds or even thousands of pounds to which you’re entitled, just because you weren’t aware of one small piece of information. Watch out for more #SortedForLife tips from financial advisers at Unbiased.
Today’s tips were by Steven Mason of Gilliland Neilson Brown and Martin Joyce of Brierie Financial Planning. Nick Green is communications manager at Unbiased, the UK's favourite place to find advice you can trust. He has been writing professionally on finance, business and many other topics for over 15 years.