The New State Pension and your retirement
For most retirees, the State Pension forms the foundation of their retirement income planning so it’s important to understand the New State Pension and your retirement. Anyone reaching State Pension age after 6th April 2016 with full entitlement currently receives a guaranteed income of £185.15 per week (£9,627.80 pa). Furthermore, the “triple lock” guarantee means this income increases each year by the higher of:
- National average earnings
- The Consumer Prices Index (CPI), or
- 2.5%
In times of high inflation, this guaranteed, index-linked income is an invaluable benefit. For example, the triple lock guarantee will lead to a 10.1% increase in State Pensions from 6th April 2023 onwards. Everyone should check their State Pension entitlement and fill in the gaps.
Eligibility and entitlement
To qualify for a full State Pension, an individual will need a complete National Insurance (NI) record of 35 years. A minimum of 10 qualifying years is required to be entitled to any amount. This means that an individual with nine years’ contributions would not receive a State Pension unless they voluntarily contributed an additional year to reach the ten year threshold.
Broadly speaking, an individual builds up their entitlement through:
- Working and paying NI
- Receiving NI credits
- Paying voluntary NI contributions
You can obtain a State Pension forecast through the Government Gateway The forecast confirms what State Pension has accumulated to date and, importantly, what additional NI credits will be required to receive the full entitlement.
National Insurance credits – childcare
Before considering making voluntary NI contributions, it is worth checking to see if any applicable NI credits are yet to be applied. A full list can be found on the government’s website.
One particular NI credit to consider is childcare. Where a parent has registered for Child Benefit for a child under age 12, NI credits are given automatically (whether the benefit is received or not). Therefore, even if it isn’t claimed (usually due to means testing), it’s important to register for Child Benefit in order to receive the NI credits.
It is also important to register the Child Benefit in the name of the parent that benefits from the credit (for example, if they ceased work to look after their child). If a mistake has been made, it’s possible to transfer these credits between parents.
Since April 2011, it has been possible for grandparents or other family members to receive NI credits if they are caring for a child under 12 while their parent (or main carer) is working. This is known as Specified Adult Childcare credits and retrospective claims can be made back 2011.
Voluntary contributions – a window of opportunity
Individuals may be able to pay voluntary contributions to fill any gaps in their NI record. Usually, it is only possible to pay for gaps for the previous six years. However, men born after 5th April 1951 and women born after 5th April 1953, have until 31st July 2023 (recently extended from 5th April 2023 due to high demand) to pay for any eligible gaps between the tax years April 2006 and April 2016. This effectively creates a window of 16 years.
After 31st July 2023, this will revert to the usual six-year period.
What does it all mean?
The State Pension provides a guaranteed, index-linked income that forms the bedrock of retirement income. As such, it is essential for everyone to maximise this benefit and ensure that NI credits are received, where applicable.
If a shortfall is predicted, it is important to consider this before the end of the tax year, as many will have the ability to fill in any gaps in the NI record going right back to April 2006. This window of opportunity reduces to the previous six years from the 1st August 2023.
Get in touch
If you have any questions about the new State Pension and how will affect your retirement planning, please get in touch.
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This blog is for general information only and does not constitute personal advice. The information is aimed at retail clients only.
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
*State Pension age is currently 66 and rises to 67 between 2026 and 2028. It will then rise again to 68 between 2044/46 (although a proposal has been made to bring these dates forward to between 2037 and 2039).
** The average earnings increase was temporarily suspended for 2022/23 following distortions to the earnings statistics.
