Why 9million state pensioners WON’T get £470 boost while others get DOUBLE the full amount
MILLIONS of retirees saw a huge boost of just over £470 to their state pensions from last week.
On April 6, the state pension rose by just over £470 per year from £11,502 to £11,976 for those on the full new state pension.
But a huge number of pensioners will not receive the full headline figure, while others may get as much as double that pay rise.
There are several reasons for this.
Why you might not get the full pension boost
First, not everyone receives the “new” state pension. Many older people receive what is known as the “basic” or “old” state pension, which pays less than the newer model.
Only one in four pensioners gets the new state pension, compared to three in four who receive the old one.
If you are a man who was born before April 6, 1951 or a woman born before April 6, 1953 then you will get the old state pension.
If you were born on or after these dates, you will receive the new state pension instead.
Around nine million people were claiming the old state pension as of May last year.
The old state pension now pays up to £176.45 per week, while the new state pension pays a maximum of £230.25 a week.
Another reason you may not get the full state pension amount is because you do not have enough qualifying years of National Insurance (NI) contributions.
To receive the full new state pension, you need 35 qualifying years of National Insurance contributions or credits, while you need 30 qualifying years to qualify for the basic state pension.
If you have gaps in your National Insurance record due to periods of unemployment or living abroad, these can affect your entitlement.
Taking time out to care for children should not affect your entitlement as you can get credits to fill in the gaps.
But you need to make sure you were claiming child benefit during that time and ticked a box confirming you wanted to receive credits to fill in any gaps in your NI record.
If you opted out of receiving child benefit, then you could have gaps.
What are the different types of pensions?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (SIPP) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. - Final salary pension – This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year upon retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension. But they’re not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you’ll need 35 years of National Insurance contributions to get this. You also need at least ten years’ worth to qualify for anything at all.
- Basic state pension – If you reach the state pension age on or before April 2016, you’ll get the basic state pension. The full amount is £156.20 per week and you’ll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.
For older people, you may have gaps in your record if you were contracted out of the second state pension at any point in your career.
This scheme, also known as the “additional state pension”, was an extra amount of money you could get on top of your basic state pension.
But you could be contracted out of this scheme to give up this additional pension in exchange for paying less in National Insurance at the time, while receiving an extra boost to your workplace or personal pension instead.
As a result, those people may get less state pension than they expected.
Why you might get more than the headline rate
However, this complicated system also means that some of those pensioners get a significantly higher income than most.
Last year, we revealed that ten lucky retirees are being paid a whopping £47,803 in state pension each year – four times more than a typical pensioner.
That’s because they get additional payments from the State Earnings-Related Pension Scheme (Serps) (second state pension).
The amount you will get depends on your NI contributions.
Some people will only receive a few pounds, while others will get the maximum payment of up to £222.10 a week.
When added to the full basic state pension, this could see you take home well over £20,000 a year.
Those people could then take other measures to boost their pension income.
For example, they could defer their state pension to increase their payments.
Deferring the state pension will mean that your payments are permanently higher when you do claim it.
You must defer your state pension for at least nine weeks after you reach the state pension age to get the increase, if you are on the new state pension.
Your new state pension will rise by 1% for every nine weeks you defer it.
If you push back your payments for a year, then they will increase by almost 5.8%.
Deferring the new state pension for one year would give you an extra £12.82 a week, based on the current rate.
And if you’re on the old state pension, you only need to defer your state pension for at least five weeks to see it boosted.
Beyond this point, your state pension will increase by 1% for every five weeks you push it back.
After one year, this would be equivalent to a boost of 10.4%.
At the current rate, deferring the old state pension for one year would give you an extra £17.63 a week.
If those people were getting the maximum SERPS, deferring would earn them an extra £189.04 on top of their full state pension and SERPs payments.
This would push their income up to £919.30 a week.
How does the state pension work?
AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
How can I boost my state pension income?
Fill in NI gaps
You can increase the amount of state pension you get in several ways.
First, check how many years of qualifying NI contributions you have.
If you have any gaps, consider paying to fill them in. You can usually fill in gaps dating back six years.
Anyone who has had career breaks, worked abroad, been self-employed, or spent years in low-paid jobs may have gaps in their NI record.
Even if you’ve already started claiming your state pension, you could still top it up, so it’s worth checking before the deadline.
However, before paying, check whether you could fill the gaps in for free first with NI credits.
You can find out who’s eligible for these credits at www.gov.uk/national-insurance-credits/eligibility.
Claim Pension Credit
If you are on a very low income, claiming Pension Credit tops up your state pension.
Check if you qualify at gov.uk/pension-credit/eligibility.
Defer your state pension
As mentioned, deferring your state pension can increase the final amount you owe.
If you can afford to go for longer without starting to claim the state pension, you simply need to choose not to claim it when you reach state pension age.
It will then be automatically deferred.
Track down lost pensions
To boost your overall pension income, make sure you have access to all the pensions you have accrued throughout your life.
You could be sitting on thousands of pounds you have forgotten about from earlier in your career.
There are other services you can use to track down a lost pension, including the Government’s online Pension Tracing Service.
The service is free to use, but only tells you the contact details of your pension provider.
Several private pension firms have apps or services to help you trace lost pensions including AJ Bell and Penny.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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