Your State Pension may not be your main source of income in retirement, especially if you have been contributing to a work or personal pension or making other investments during your working life. However, it should still be an important consideration for your long-term retirement planning.
This means understanding how much you are entitled to and ensuring you receive the full amount you are due.
An often forgotten aspect of the State Pension is that it is possible to increase the amount you are entitled to, if it is lower than you hoped.
Consider the State Pension as the foundation of your retirement income
While the amount that the State Pension pays is unlikely to be enough to fund your dream retirement, it can still play a significant role in your retirement income strategy.
Rather than having to use the money you saved and invested throughout your working life to meet basic expenses, having State Pension payments to pay your daily living expenses can leave you to spend the rest of your retirement plan as you wish.
The guaranteed income can help you cover the costs of your food shopping and other household bills.
Additionally, although the government suspended the wages element of the pensions triple lock for 2022/23, the State Pension still increased by 3.1%, in April 2022.
In May 2022, the former chancellor reassured people that the triple lock will once again apply from April 2023. This means that the State Pension will continue to rise in line with economic activity each year and should help to ensure that what you receive will retain its spending power, even over time.
Check what you will get
For the 2022/23 tax year, the full new State Pension you could receive is £185.15 a week, totalling £9,627.80 each year. The actual amount you will get depends on your National Insurance record.
To receive the full State Pension, you will need 35 “qualifying years”.
Qualifying years can include years in which you were:
- Employed and earning more than £183 a week from a single employer
- Self-employed and paying National Insurance contributions
- Claiming Child Benefit for a child under 12
- Receiving Jobseeker’s Allowance or Employment and Support Allowance
- Receiving Carer’s Allowance.
If you have fewer than four qualifying years on your National Insurance record, this may not be enough to qualify for a new State Pension; you will usually need at least 10 qualifying years in total.
The amount you receive will be calculated based on full qualifying years where they equal between 10 and 35 years.
To get an idea of the State Pension you might receive, check your National Insurance record on the government website.
Fill any gaps with voluntary National Insurance contributions
You can also use the government’s website to get a State Pension forecast and it is a good idea to do this well in advance of your retirement date.
Checking ahead of time will give you accurate figures that you can use in your retirement planning. Plus, if you find you have gaps in your record, you will have time to consider making voluntary contributions to help bridge the gap.
You can usually pay voluntary contributions for the past six years and the deadline for doing so is 5 April each year.
In April 2023 you can top up as far back as 2006
If you are a man born after 5 April 1951 or a woman born after 5 April 1953, you have until 5 April 2023 to pay voluntary contributions to make up for gaps between tax years April 2006 and April 2016, if you are eligible.
After 5 April 2023, you will only be able to pay voluntary contributions for the past six years.
Making voluntary contributions will not always increase your State Pension but we can help you decide if topping up is the right decision for you. Get in touch if you are concerned about the amount you are due to receive.
Get in touch
The true value of the State Pension can be easily underestimated but it should form the bedrock of your long-term retirement planning.
This makes it crucial that you understand the amount you will receive and that you receive your full entitlement once you reach State Pension Age.
If you would like to discuss any aspect of your long-term financial or retirement plans, please get in touch. Email firstname.lastname@example.org or call us on 01275 462 469.
Bowmore Financial Planning Ltd is authorised and regulated by the FCA.