Seven ways to boost your state pension before and during retirement – from National Insurance credits to child benefits
Kay Ingram is director of public policy at national financial planning group LEBC
Kay Ingram is director of public policy at national financial planning group LEBC.
There are several ways to increase state pension entitlement – some for those who have already passed state retirement age and others for those below age 66. Many of them cost nothing.
The state pension is a contributory benefit. Individual entitlement is based on National Insurance contributions, which are typically paid via PAYE for employees, with the self-employed paying class 2 NI contributions.
You can request a forecast from the Government website or call 0800 731 0175 to establish how much you may receive.
If it is less than £175.20 per week under the new state pension or £134 for a pension starting before 6th April 2016, you may be able to increase it in one of the following ways:
1. Claim child benefit
Parents not paying NI contributions through employment or self-employment may claim credits, which are automatically provided when claiming child benefit. To ensure the NI credit isn’t wasted it is essential that the adult who is not paying NI through employment or self-employment claims the child benefit. Credits continue until the youngest child is 12.
Parents who have waived the benefit due to the high-income child benefit charge can also claim the NI credit by applying for child benefit but then waiving payment.
2. Claim specified adult childcare credit
Specified adult childcare credit can be claimed by anyone under state pension age who is voluntarily caring for family members under 12, while the parents work. For those eligible, the credits can be backdated up to 2011 and could be worth extra state pension of as much as £2,340 per year.
Specified adult childcare credit can be claimed by anyone under state pension age who is voluntarily caring for family members under 12
3. Carer’s allowance and carer’s credit
If in receipt of carer’s allowance a credit for NI contributions will automatically be available. Each year’s credit currently provides £260 per year of state pension. Telephone 0800 731 0297 or visit the Government’s website.
If ineligible for carer’s allowance you may still claim carer’s credits worth a NI credit for each year if you care for an adult for 20 hours per week or more and whose care needs meet the eligibility criteria. More info on the Government’s website.
4. Delay starting the state pension.
While the state pension is payable from age 66 and earlier for those who qualified before this year, payment can be delayed, and in this scenario the annual pension will be increased.
This could be worthwhile if still working, paying tax at higher rates and with an expectation of a long lifespan. Different rules apply, depending when entitlement started, with those born before 6th April 1951 (men) and 1953 (women) offered a better deal.
5. Pause receiving the state pension
Those who have already started to receive state pension may pause payment. This can only be done once and could be worthwhile if the income it provides is surplus to needs, if the individual’s tax liability will be higher for a period and there is an expectation of a long lifespan, or for older couples, a spouse who may benefit from the lump sum payable on death, where the pension started before 6th April 2016.
Missed NI contributions can be made up by paying class 3 contributions, but care is needed when deciding how many years and which ones to pay for
6. Pay voluntary National Insurance
Missed NI contributions can be made up by paying class 3 contributions. The cost is £795.60 for each year’s credit and will buy up to £260 per year of extra pension.
Care is needed when deciding how many years and which ones to pay for, or it could be money wasted.
In 2016 the State Pension changed and only 30 years’ contributions now count towards pre-2016 benefits. From 2016, 35 years are needed, so deciding which years to allocate the top up to is crucial.
Unfortunately, the online tool on the DWP website does not distinguish between these two sets of rules, so it is worth checking before paying. Call the DWP on 0800 731 0175 or take financial advice.
7. Claim on the NI record of a spouse, ex-spouse or deceased spouse
Married women eligible to claim their state pension before 6th April 2016 may be entitled to an uplift in pension when their spouse turns 65.
This applies where the woman’s pension is less than 60 per cent of the basic state pension paid to her husband (around £80.45 per week). Women receiving less than this should contact the DWP and may receive an increase and arrears.
Widows and divorcees may also be eligible for this increase and arrears. Widows may claim this when reporting the death of their husband and could qualify for up to 100 per cent of his basic State Pension and a share of his earnings-related pension.
Divorced women may claim credits of the ex-spouse’s NI record, up to the date of divorce, which could result in a pension top of up to 100 per cent of his pension.
Those who divorce post retirement will need to apply to the DWP. Divorcees who split before retirement can include details of their ex-spouse when they apply for their state pension to start.