Topping up your State Pension
Whilst your workplace pension forms a very important part of your retirement planning it is important not to forget about your State Pension. If you are not on track to get the full amount of State Pension (or you are not receiving the full amount if you have already drawn your State Pension), then it’s worth considering topping up.
The amount of State Pension you get is based on your record of National Insurance Contributions (NICs):
- If you reached State Pension age before 6 April 2016, you need to have completed at least 30 qualifying years of NICs to receive the basic State Pension of £119.30 per week (2016/17 rate).
- If you reach State Pension age on or after 6 April 2016, your past NICs to that date will be used to calculate a ‘Starting Amount’ for the new State Pension. From 6 April 2016 you may be able to add 1/35 of the full amount to this each year, until you reach the full amount, or your State Pension age, whichever comes first. The full amount of the new State Pension is £155.65 per week (2016/17 rate). To get your individual forecast go to www.gov.uk/check-state-pension.
For those with a State Pension age on or after 6 April 2016 then you may not receive the full new State Pension if:
- You paid into a ‘contracted out’ pension scheme, such as the LGPS, NHS or Civil Service Schemes between 6 April 1978 and 5 April 2016. The amount of new State Pension you receive will be reduced to reflect the fact that you and your employer paid a lower rate of National Insurance.
- You have gaps in your NI record. If so you may be able to pay voluntary Class 3 NICs to fill them, and so increase your State Pension. Normally you must make the top-up payment within six years of missing the original payment, however, individuals reaching State Pension age on or after 6 April 2016 have until 5 April 2023 to pay for any gaps from 2006/07 to 2015/16 tax years – see GOV.UK website for more information.
However you might first want to check if you qualify for any NI credits (such as carers credit) ad whether paying voluntary NICs would actually increase the amount of State Pension you will receive.
Paying voluntary NICs after you draw your LGPS pension
If you reach State Pension age on or after 6 April 2016 and you retire from the LGPS before your State Pension age it may be worth considering paying voluntary NICs after you retire.
For the majority of LGPS members’ entitlement for the new State Pension will take into account that the LGPS was contracted out between 6 April 1978 and 5 April 2016. Because of this, you will have paid a lower rate of NI and this means you may not receive the full amount of the new State Pension.
However, by paying voluntary Class 3 NICs for years from 2016/17 up to the financial year before the one in which you reach State Pension age, you may be able to increase your State Pension by 1/35 of the full new State Pension rate for each year (up until you reach the full rate). At current rates this is £155.65 divided by 35 or an extra £4.45 per week.
Deferring your State Pension
Delaying the date you start taking the State Pension can make a significant difference to the level of pension you’ll get.
For those who reach State Pension age after 6 April 2016, the new State Pension rules will apply which means that for every 9 weeks you delay taking your pension, it increases by 1%. This means you’ll receive an increase of around 5.8% by delaying for at least a year.
For those with who reached State Pension age before 6 April 2016
Gaps in your National Insurance record
If you have gaps in your NI record you may able to pay voluntary NICs to fill them, and so increase your State Pension. You can normally only go back up to six years but there are some exceptions when you can go back further – see GOV.UK website for more information.
State Pension top up scheme
If you are entitled to draw a State Pension you can increase your State Pension and get a guaranteed extra income for life with the ‘State Pension top up’ scheme.
The scheme allows you to pay a voluntary Class 3A contribution lump sum to boost your State Pension by between £1 and £25 per week. The cost for every extra pound of pension is based on your age. This scheme only runs until 5 April 2017 so if you wish to take advantage of it you will need to pay your voluntary contributions before 5 April 2017. Use the State Pension top up calculator to find out how much you’ll need to pay.
If you have gaps in your National Insurance record, it may be more cost effective to make voluntary NICs first.
Deferring your State Pension
Delaying the date you start taking the State Pension can make a big difference to the level of pension you’ll get.
For every five weeks you delay taking your pension, it increases by 1%. This means that if you defer for at least a year, you’ll get a 10.4% boost to your pension.
Find out how to defer your State Pension on the GOV.UK website