Don’t sleepwalk into a low State Pension

Everything you need to know about getting the most from your State Pension

Only 44% of pensioners receive the full flat rate State Pension, according to the Department for Work and Pensions (DWP).

Here are some tips to follow to help make sure you’re not missing out unintentionally.

What is it?

The flat rate State Pension was introduced for anyone retiring after 6 April 2016. It replaced a complex mish-mash of different payments including basic, second tier and additional pensions for partners in a non working couple.

Simple is good, and the current State Pension is a lot clearer than the previous arrangements. However there are a still a number of things to look out for when working out how much you can expect to receive.

How much will I get?

The full flat rate State Pension is £9,340 per year for 2021/22. For many people a full State Pension is a significant proportion of their retirement income.

To qualify for the full State Pension you need to have 35 years of full National Insurance (NI) contributions (or credits, more on those below) at State Pension Age. 

If you have less than this amount, your State Pension will be a proportion of what you would have received after 35 years.

So for example if you have 28 years, you will get 28/35 = 80% of the full rate amount. Below, we’ll show you how to find out how many years’ worth of contributions you may have already.

Unfortunately if you have less than 10 years’ worth of NI contributions you will not receive any State Pension at all.

And if you’ve been contributing in full for more than 35 years, you won’t get any more than the full State Pension.

You can get an estimate of your current State Pension based on your NI contributions to date here. This doesn’t include any expected increases to your State Pension Age.

You will need a Government Gateway login, but once set up you can enter your details to find out an estimate and also see how many years of full NI contributions (or credits) and missing years that you have to date.

When will it be paid from and to?

State Pension is paid from State Pension Age. The current State Pension Age is 66 but is increasing over time. Check your State Pension Age to find out when you’ll receive your State Pension.

The State Pension is paid for life, no matter how long you live.

How does it increase?

The State Pension increases each year in line with the “triple lock” system. This means the amount you receive will increase by the higher of:

– the increase in consumer price inflation

– the increase in national average earnings

– 2.5%

This is really generous (and expensive for the Government) so many believe the “triple lock” is unsustainable. In future years a “double lock”, or even just a single criteria for deciding on the annual increase may be used.

How many years NI contributions do I have?

This is actually quite simple to find out. You can check your National Insurance record online or via the previous link above.

You can also see how many years you have left to build up the remaining amount needed for a full State Pension.

What are NI Credits?

You don’t have to be working to get  NI Credits.  They build up in exactly the same as if you had made NI contributions whilst working.

You will automatically get these credits in a number of situations such as (but not limited to):

– Seeking work when unemployed

– Receiving disability or sick pay

– On maternity, paternity or adoption leave

– Caring for someone (including claiming child benefit). There is an important point to note here: you must be claiming child benefit for a child under 12. If you are claiming child benefit only for children aged 12 or over you will not receive these credits.

If you stopped claiming child benefit as your partner had to repay this in tax, but you were not working yourself, you will lose these credits. Therefore it’s important to keep claiming it and pay it back if not working yourself to get the credits.

What if I don’t have enough NI contributions/credits to qualify for a full State Pension?

Let’s say you’ll reach your State Pension Age in 5 years, but only have 20 years of NI contributions or credits. In this case, the maximum number of years you can build up is 25.

However, you may be able to pay voluntary contributions to top up to achieve closer to the full amount, although we understand this is limited to unpaid contributions from the last six years.

Are there any other complications?

As ever there are some complexities when it comes to understanding how much State Pension you’ll get.

One is contracted-out deductions. If you paid lower National Insurance in some years because you were in a contracted-out pension scheme, this may reduce your full State Pension payable from the Government to some degree. This could be up to £2,500 per year.

This doesn’t matter if you have 35 years or more of full rate contributions by State Pension Age, but if you have 35 years or less and some years include lower National Insurance contributions it may do.

If you check your State Pension in the link above. At the bottom of the page it will say if you were ever contracted out. If so, click the link there and it will tell you the weekly deduction applicable, called a Contracted Out Pension Equivalent (COPE), to reduce the State Pension payable from the Government by.

However, even if you lose this amount from the Government you will likely have a larger pension from the company you worked for at the time because of it, which should make at least some of this difference up.

Contracting-out was abolished on 6 April 2016, so any pension contributions you’ve made after this date definitely won’t have affected your State Pension.

You can find out if you were contracted-out of any of your pre-2016 pensions by looking at old payslips. Or you could ask the Pensions Tracing Service if you have lost contact with your previous employers or pension providers.

Is retirement planning just about my State Pension?

The State Pension is just one source of money that you can put towards a retirement income. Very soon we will provide tools to help you obtain a more accurate forecast based on all the information above more easily.

As well as the State Pension you can also use your workplace pension pots, payments from old final salary schemes, ISAs, other forms of savings, earnings from part-time or occasional work – in fact, any form of savings or income can help to finance your retirement.

Guiide makes building a plan with everything you have simple. Just tell us what you want and everything you have and we do the rest. Best of all it’s free to use for all our subscribers.