Whatever else happens to us on the way, a generous state pension is something we all would like to look forward to.
Thanks to the provisions of the triple lock, which ties state pension payments to the highest out of average earnings, inflation or 2.5% it could rise to more than ยฃ12,000 a year from next April.
But before you start working out how to spend that ยฃ1000 a month, there are some traps which could prevent you from earning the full amount.
Thousands of people are underpaid each year. In 2023, the Department for Work and Pensions (DWP) admitted six out of every 100 state pension claims are being underpaid.
You need to make sure you are not in the unfortunate 6%.
How much should your state pension be?ย
Your state pension entitlement will depend on when you were born and how long you paid National Insurance contributions when you were working.
Men born before 6 April 1951 and women born before 6 April 1953 receive the basic state pension, currently ยฃ169.50 (ยฃ8,814 a year). If you were born after this then you will receive the new state pension, now ยฃ221.20 per week or ยฃ11,502.40 per year. But to get the full state pension you need to have at least 35 years of National Insurance (NI) contributions. If there are gaps in your NI record, there will be a shortfall in your state pension.
Gaps can happen if you have had a career break - perhaps to have a family - worked abroad, or been self-employed and not making adequate contributions. They can also simply be mistakes.
If you do think a mistake has been made, you need to do something about it.
Check your state pension entitlement
You can check your state pension forecast by visiting the Government website. You can also request a printed National Insurance statement online, by phone or by post if you live abroad.
If there are mistakes, they can be corrected โ but if you have not made enough contributions, all is not lost.ย You may be able to make up the shortfalls with voluntary contributions. There is usually a deadline, and you can currently top up anything youโve missed between 2006 and 2016.ย
To see whether you could make voluntary contributions, check with the Governmentโs Future Pension Centre on 0800 731 0175. If youโre already claiming the state pension, contact the Pension Service on 0800 731 0469.
The standard cost to make up a year of missing NI contributions between 2006 and 2016 is ยฃ824.20. Paying this adds up to ยฃ302.86 each year to your pre-tax state pension (based on 2023/24 rates) โ so if you live much more than 2.5 years after state pension age, it could be a rewarding investment.
You may also be able to claim NI credits at no cost if you have been responsible for caring for children or grandchildren, which has made working impossible for you.
What else you can do to prepare for retirement?
Getting everything that you are entitled to from the government is a vital, but even if you do get the full state pension it may not be enough for a comfortable retirement.
A single person needs a minimum income of ยฃ14,400 a year to cover essentials and to have a little left over, for emergencies according to the Retirement Living Standards from the Pensions and Lifetime Savings Association. Forget running a car, or evenings out. A lifestyle that includes one foreign holiday a year and eating out a few times a month will need an income of more than ยฃ30,000 a year.
You will need more than ยฃ18,000 a year income on top of your state pension to achieve it โ which might require a substantial private pension pot with more than ยฃ500,000 in it.
The good news is that there are ways to potentially build that sum, evenย
ifย with an average income โ with some help from us at Continuum.
The crucial thing is to start building your personal pension as early as possible. Call us today to discuss your needs.
Home - PLSA - Retirement Living Standards
Should I top up my state pension? - Which?
How to check youโre getting the state pension you deserve (telegraph.co.uk)
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular retirement strategy and you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits areย taken. Pension savings are at risk of being eroded by inflation.
The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
