The State Pension is a regular payment from the government that you can claim when you reach State Pension age. It is based on your National Insurance record and provides an income in retirement. The full new State Pension is currently £185.15 per week (2022/23 rates), but the amount you will receive depends on your National Insurance contributions over your working life. There are several ways you may be able to increase your State Pension amount. This article explains what the State Pension is, how it is calculated and the main options available to improve it.
What is the State Pension?
The State Pension is a weekly payment from the government that you can claim when you reach State Pension age. There are two parts to it:
– The basic State Pension – this is based on your National Insurance contributions up to 6th April 2016. It is currently up to £141.85 per week (2022/23 rate).
– The new State Pension – this applies to National Insurance contributions from 6th April 2016 onwards. The full amount is currently £185.15 per week (2022/23 rate).
The State Pension age is 66 for both men and women. It is rising to 67 between 2026 and 2028. Plans are in place to increase it further to 68 between 2044 and 2046, though this is still subject to further review.
To be eligible for the full State Pension you need a minimum of 35 years of National Insurance contributions. You can still receive a payment if you have between 10 and 35 years of contributions, but the amount will be less. No National Insurance contributions are needed if you reached State Pension age before 6th April 2016.
The State Pension is taxable income. You must pay tax on it if your total annual income exceeds your Personal Allowance.
How is the State Pension calculated?
Your State Pension is calculated based on your National Insurance record under the old and new schemes:
The basic State Pension
– This is based on your contributions up to 6th April 2016 and calculated as follows:
– You receive 1/30th of the full basic State Pension for each qualifying year if you have between 10 and 30 years of contributions.
– The maximum is 30 years, which equates to the full basic State Pension amount.
– If you have less than 10 qualifying years, you will not normally get any basic State Pension.
The new State Pension
– This is calculated based on your record from 6th April 2016 onwards.
– You will receive 1/35th of the full new State Pension amount for each qualifying year.
– To receive the full amount you need 35 qualifying years.
– If you have between 10 and 35 years of contributions you will receive a proportion based on the years you have paid in.
– You need at least 10 qualifying years to receive any new State Pension.
Your National Insurance record before April 2016 is used to calculate your ‘starting amount’ for the new scheme. This determines if you receive more or less than the full new State Pension. If your starting amount is more than the full new amount, you will keep the higher rate.
Some National Insurance credits such as for unemployment, sickness or as a parent or carer can help boost your State Pension.
How to increase your State Pension
There are several options to help increase your State Pension amount:
Make voluntary National Insurance contributions
If you have any gaps in your National Insurance record (such as time spent raising children, unemployed or living abroad) you may be able to make voluntary contributions to boost your State Pension. This allows you to increase your qualifying years in both the old and new schemes.
You can normally make backdated voluntary NI contributions for the previous 6 years. The amount you pay is depending on your employment status at the time.
Defer your State Pension
You can put off claiming your State Pension when you reach State Pension age and receive extra payments when you start to claim it. This increases your payments permanently.
Under the old rules, you receive 1% extra for every 5 weeks deferred.
Under the new scheme every 9 weeks deferred adds an extra 1% to your State Pension when you start claiming. This works out around 5.8% extra per year deferred.
There is no limit, apart from the age you choose to start claiming.
Continue working
You can choose to keep working when you reach State Pension age and continue paying National Insurance.
This allows you to increase your qualifying years under the new scheme and boost your payments.
Each extra year worked adds 1/35th of the full rate to your State Pension entitlement.
Claim child benefit
Women who reached State Pension age before April 2016 can benefit from claiming child benefit, even if not eligible for payments.
Each full year claimed provides a qualifying year towards the State Pension, so women should claim child benefit even if they earn too much to receive actual payments.
Check your National Insurance record
It is important to check your National Insurance record to understand if you have any gaps in contributions. Periods where you were contracted out, unemployed, sick or a parent may show as gaps.
You can obtain a State Pension statement which summaries your record. If errors are identified, you can make efforts to correct your record, such as providing evidence of periods missed.
Consider top ups if you are close to the next threshold
If you are near to the next State Pension threshold, a top up may allow you to reach it and qualify for extra payments.
For example, if you have 33 qualifying years, two extra years would give you the full new State Pension. Top up contributions may be worthwhile if you are close to the 10, 30 or 35 year thresholds.
Claim Pension Credit if you are on a low income
Pension Credit provides a top up to weekly income for retirees on lower incomes. It can add up to £182.60 a week for couples or £278.70 for singles (2022/23 rates).
You may still qualify if you have some other income such as an occupational pension. Pension Credit can also enable access to other benefits.
Consider deferring your company pension
If you have a private or occupational pension, you may get improved benefits if you defer taking payments.
Many schemes offer an uplift for each year you put off claiming. This can help bridge any gap to your State Pension.
However, you need to check with your scheme provider as there may be limits or restrictions.
Save into a private pension
Building up additional retirement savings in a private pension can provide more income in later life.
This may help if you are not entitled to the full State Pension or want additional funds. Tax relief is available on private pension contributions within annual and lifetime allowances.
Taking out a private pension at a younger age allows more time for your savings to grow. Putting aside a regular amount each month is advisable.
Consider retiring abroad
If you retire to an EEA country or one with a social security agreement with the UK, your State Pension can still be paid.
In some countries, the UK State Pension is increased each year by the rate in that country.
Always check what the effect on your pensions would be before moving abroad in retirement.
Who can claim extra State Pension?
There are some specific rules that allow certain groups to claim extra State Pension or credits in certain circumstances:
Married women and widows
Women who paid the reduced ‘married woman’s stamp’ prior to April 1977 can claim extra payments:
– If you are married you can claim up to 60% basic State Pension based on your husband’s contributions
– Widows can increase their basic State Pension to the full rate based on their deceased husband’s record
But this is only for the basic State Pension under the old system, not the new State Pension.
Divorced or former civil partners
You may be able to use credits from an ex-spouse or civil partner after divorce or dissolution:
– If they have reached State Pension age but you have not, you can use their National Insurance record up to when the relationship ended.
– If you have both reached State Pension age, you can inherit part of their State Pension if they die.
Parents and carers
National Insurance credits can be gained for periods caring for children under 12 or sick and disabled people. This helps protect your entitlement.
You may also qualify if you receive Child Benefit, even if you do not actually get payments due to higher income.
Armed forces veterans
Special rules apply to armed forces veterans meaning they qualify for State Pension after just 2 years of service.
A veteran’s partner may also be able to inherit their State Pension after death.
Overseas nationals
If you have lived or worked abroad you may be able to use these qualifying years towards your UK State Pension.
Your eligibility can depend on reciprocal social security agreements between countries.
Maximising your State Pension – 7 key tips
Here are 7 vital tips to help maximise your State Pension entitlement:
1. Check your State Pension age
Make sure you know when you will reach State Pension age as this is when you can start claiming payments. For most people this is currently age 66.
2. Obtain a State Pension statement
This will summarise your National Insurance record and expected pension amount. Check for any errors or gaps which you may need to rectify.
3. Consider voluntary NI contributions
If you have gaps in contributions, paying voluntary NI may boost your record. But take advice to understand if worthwhile.
4. Check options to defer your pension
Deferring your State Pension could permanently increase your payments. But consider the break-even point versus claiming early.
5. Pay attention to your private pensions
Take full advantage of workplace and private pensions to complement the State Pension. Consider increasing contributions nearer retirement.
6. Maintain your National Insurance record
Keep working and paying NI if you can. Each extra year could add 1/35th towards your new State Pension.
7. Investigate Pension Credit
If you are eligible for Pension Credit, make sure to claim. This can provide a valuable boost to retirement income.
Case Studies
Case Study 1 – Deferring the State Pension
John reached State Pension age in November 2022 at the age of 66.
His State Pension entitlement was calculated as:
– Basic State Pension – £140 per week
– New State Pension – £155 per week
This gave total State Pension of £295 per week.
John took financial advice and decided to defer claiming his State Pension for 3 years until he is 69.
As he deferred for 156 weeks, under the current rules his State Pension will increase permanently by 15.6%.
When John claims his deferred pension at age 69 in November 2025, this will now be:
– Basic State Pension – £140 per week
– New State Pension – £155 increased by 15.6% = £179.28 per week
Giving a total weekly State Pension of £319.28 – an extra £24.28 per week.
Over 3 years of deferring, John has increased his annual State Pension by around £1,262 per year for the rest of his life.
Case Study 2 – Voluntary National Insurance Contributions
Mary is 62 and planning ahead for her retirement at 66.
She obtained a State Pension statement which shows she has 29 qualifying years towards her State Pension.
As she has less than the 35 years required for the full new State Pension, she is entitled to 29/35ths of the full amount which is around £161 per week.
Mary realises she has a 6 year gap in contributions when she left work to have children and then did some part-time work which did not quality for NI credits.
She investigates paying voluntary NI for the 6 missing years of contributions. As she is still under State Pension age she can backdate for the last 6 years.
The cost is around £800 per year which seems worthwhile to Mary to increase her State Pension.
By paying voluntary NI for 6 years, Mary increases her qualifying years to 35.
This means she qualifies for the full new State Pension when reaching 66, which is around £24 per week higher than she would have received.
Conclusion
The State Pension forms the backbone of retirement income for millions of people. Understanding your entitlement and options to improve it can make a significant difference to your standard of living in later life.
There are various ways to boost your State Pension by increasing your qualifying years, deferring your pension start date or ensuring you receive credits for periods out of work.
Good financial planning, complementary private pensions and claiming benefits where applicable can all help maximise retirement income. But make sure to obtain expert advice suited to your individual circumstances.