How to increase and enhance your state pension: Steve Webb’s golden rules
Buying a state pension can give a big boost to retirement income, but people are often confused about whether it makes sense for them personally.
You’ll need to check your National Insurance record to see what you’ve already paid into a state pension, then decide whether you need to top up the amount and, if so, in what years you should either fill in the gaps or buy from scratch.
Currently, the usual six-year deadline to do so has been extended to 2006/07 – a special deal that was due to expire on April 5, 2023. But after the phone collapse, The top-up deadline has been postponed twice and is now April 5, 2025.
State pension boost: Learn how to boost your retirement income
new Online service for purchasing state pension top-ups It will launch by spring, after a deluge of complaints that the current system is confusing and takes too long to process payments.
A website now being developed and tested by the government will allow people to check the best years to top up their balance and buy straight away, but they will still be able to phone in and pay offline if they prefer.
Refer to the recharge guide for more information about the new service, which we will publish when we get it. Meanwhile, the former Pensions Minister and This Is Money columnist. Steve Webb runs a free website for buying state pension top-ups To help savers through the tax process.
Webb, now a partner at LCP, says the site aims to help people “decode” the information they get about their National Insurance record from the government website and see if increasing their state pension makes sense.
What is the cost of increasing your state pension?
One year of Voluntary National Insurance contributions costs £824.20 at the 2022-23 ‘Category 3’ rate, or less if you’re filling a part-year.
The costs have been frozen until April 5, 2025, although there is a 10.1 per cent increase in state pensions this year, with a further increase expected next spring.
“At best, increasing your state pension can be a cost-effective way to secure a higher income in retirement,” says Steve Webb.
“In many cases, this will boost your State Pension entitlement by 1/35 of the standard rate.
This equates to £5.82 a week, or £303 a year, or more than £6,000 over 20 years of retirement (not including tax), For an initial outlay of £824.20 at 2022-23.
The 2023-2024 price is £907.40. The government-backed MoneyHelper website has more information about What is the cost of increasing state pensions? For different years.
Self-employed people pay different rates of National Insurance contributions, and their system is being reformed from April. Steve Webb has the full details about How self-employed people can build a state pension register.
What do you need to know before purchasing refills?
Steve Webb thinks The government’s ‘Check State Pension’ website It provides useful information but does not decisively help people decide in what years, if any, they should top up their balance.
The LCP helps fill the gap for those who fall under the ‘new’ state pension scheme launched in April 2106 – that is, men born on or after 6 April 1951 and women born on or after 6 April 1953.
It works as follows:
– Users are asked for information about themselves Register your personal National Insurance from Gov.uk first
– They are asked to provide basic details about their age and what is stated in this register – the LCP does not keep this
The site then interprets this information to explain to users their options
– Users are warned that they should always check with the Department for Work and Pensions that a specified years increase will definitely boost their state pension before paying any money.
Webb says that in some cases, LCP will simply confirm what users have already found, but he hopes it will help others discover the potential of top-ups.
He adds that there are two groups for whom refills may be particularly important. First, public servants who took early retirement and were members of a contracted occupational pension scheme that reduced their state pensions to less than the maximum amount.
Secondly, self-employed people who may have gaps in their National Insurance record and are able to go back to any year since 2006/07 to supplement that record.
Steve Webb’s Golden Rules for Buying State Pension Increases
1. Make sure you take up any credits you are entitled to before paying out Voluntary National Insurance for a particular year.
For example, grandparents who are under retirement age may be able to take credits for their state pension if they are caring for a grandchild, enabling the child’s parent to go out to work.
Because NI credits cost nothing, you should always claim what is available for free before paying voluntary NI for any given year.
2. Whether or not it makes sense for an individual to top up their balance depends on their individual circumstances.
You should always start by checking your state pension record on the government webpage.
This might tell you, for example, that you will already be receiving the maximum State Pension and therefore do not need to make any voluntary contributions, even if you have some gaps in your record.
Filling in the blanks for certain years – especially those before 2016/17 – may sometimes have no impact on your state pension, especially if you are a contractor and have already paid for 30 years by April 2016
3. Some years may be cheaper to fill than others. For example, if you work part of a year, you may find that you can fill that year at a lower cost than filling a completely empty year.
4. Fill in the gaps at the Class 2 rate if you can, as voluntary national insurance for the self-employed is much cheaper than for employees – £179.40 per year, rather than Class 3 contributions of £907.40 per year, at 2023-24 rates.
If you have low-income self-employment in a given year and have a gap on your record, you should be able to pay at the Class 2 rate for that year, which will save you money.
System for Building a state pension register for self-employed workers Changes from April.
Steve adds an important tip for all freelancers – Check your state retirement record now.
He says: I’ve lost count of the number of times I’ve heard from self-employed workers who reach retirement only to find huge gaps in their National Insurance record.
This often turns out to be related to periods when their accountant was dealing with these matters for them, and they simply assumed that everything was fine, when in fact this was not the case.
“Unfortunately, it is everyone’s responsibility to make sure they pay the correct amount into National Insurance, and it can often be difficult or impossible to fix things after the fact.”
5. People who expect to receive benefits in retirement may find that their increased state pensions are restored through a reduced pension credit or housing benefit
6. Always check before handing over any money. The rules are complex and you can sometimes plug a gap that makes no difference to your final pension.
How much is the state pension now?
The full fixed state pension is £203.85 per week or £10,600 per year. This will rise to £221.20 or around £11,500 a year in April.
People who retired before April 2016 on a full basic state pension will get £156.20 a week or £8,120 a year. This is set to rise to £169.50 per week, or around £8,800.
But the old basic rate is credited with additional state pension benefits – S2P and Serps – if they are earned during your working years.
People who contracted with S2P and Serps to pay less National Insurance over the years and retire after April 2016 may get less than the full new state pension.
Workers now need 35 years of contributions to get the new fixed state pension, compared to 30 years of eligible National Insurance contributions to get the old state pension.
But even if you pay in full for 35 years or more, if you contract for multiple years, that could reduce what you get.
Everyone gets a choice Postponing their government pensions To get more in their later years.
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(tags for translation) Daily Mail