For more than 100 years, the State Pension has played an important role in providing an income for retirees. Considering the full State Pension in 2020/21 is £175.20 a week – over £9,100 a year – it’s the bedrock of many retirement plans.
Recent court cases have highlighted some of the inequalities that women can face when it comes to claiming the State Pension. Many women approaching retirement may also face the prospect of a lower State Pension if they don’t have a full 35-year National Insurance contribution record.
To help you maximise your State Pension, here are some tips that can help you to make up for any “missed years”. And, if you’ve already retired, you may be eligible for a boost to your State Pension – read on to find out why.
Establish your State Pension entitlement
You’ll be able to claim the new State Pension if you’re a woman born on or after 6 April 1953. You can claim your State Pension when you reach State Pension age which is currently 66 but rising to 68 by 2046.
In order to get any State Pension, you will usually need at least ten qualifying years on your National Insurance record. Note that they do not have to be ten qualifying years in a row. This means for ten years at least one or more of the following applied to you:
- You were working and paid National Insurance contributions (NICs)
- You were getting National Insurance credits. This could be because you were unemployed, ill, or a parent or carer. For example, you automatically receive Class 3 National Insurance credits if you’re a parent registered for Child Benefit for a child under 12 (even if you do not receive it)
- You were paying voluntary National Insurance contributions (more on this in a moment).
If you started claiming, or you will start to claim your State Pension, on or after 6 April 2016 you currently need 35 years’ worth of contributions to get the maximum pension. You will receive a proportionate amount of the new State Pension if you have between 10 and 34 qualifying years.
It’s easy to see why some women may not have a full 35-year NIC history, particularly if you took time out of the workplace to care for children or elderly relatives.
A good place to start is to establish how much State Pension you are eligible to receive. You can use the government website to check your entitlement and find out:
- If you have any gaps
- If you’re eligible to pay voluntary contributions
- How much it will cost.
You may also be eligible for National Insurance credits if you claim benefits because you cannot work, are unemployed, or caring for someone full time.
Consider making voluntary contributions to make up for missed years
If there are gaps in your NIC record, you can make up for missed years by making voluntary contributions. These are normally Class 3 contributions, but if you’re self-employed or working abroad, you can pay Class 2 contributions instead.
Before deciding whether to pay voluntary NICs, you should make sure that:
- There are gaps in your National Insurance record for which payment can be made
- You know how much you need to pay
- You understand the benefits of paying.
You may want to pay voluntary contributions if:
- You’re close to the State Pension age and you don’t have enough qualifying years to get the full State Pension
- You know you won’t be able to make up the qualifying years you need to get the full State Pension during your working life
- You’re self-employed, and you don’t have to pay Class 2 NICs because your profits are low
- You live outside the UK, but you want to qualify for some benefits.
You can usually pay voluntary contributions for the past six years. The deadline is 5 April each year. So, for example, you have until 5 April 2021 to make up for gaps for the tax year 2014/15.
In addition, you can sometimes pay for gaps from more than six years ago, depending on your age.
The cost of voluntary contributions depends on the year you want to pay for. The cost for the 2020/21 tax year is:
- £15.30 a week for Class 3 voluntary NICs
- £3.05 a week for Class 2 voluntary NICs.
Consider other alternatives to save for your retirement
If you have a few years left until your retirement, then there are alternative ways of building up a retirement income. These may include:
- Contributing to your workplace pension if there is one. Here, you will typically contribute 5% of your earnings, and, if you earn more than £120 per week (£520 per month), your employer will contribute 3%. As the employer contribution is made at no cost to you, this can be an excellent way to save.
- Contributing into a personal pension. You can pay up to £40,000 or 100% of your earnings, whichever is the lower, and benefit from tax relief on your contributions.
- Saving or investing a regular amount. ISAs offer an excellent way to save tax-efficiently, and there is a wide range of other types of investment available depending on your tolerance for risk and the amount of time left until your retirement.
Working with a financial planner can help you to put a long-term plan in place and ensure you meet your retirement goals. We can help you get to grips with your existing provision – including your State Pension – and provide guidance and advice on the best steps for you. Email firstname.lastname@example.org or call us on 01189 876655 to find out more.
Already retired? You could still be missing out on some State Pension
In the last few years there have been several high-profile cases of retired women missing out on State Pension benefits to which they were entitled.
So, if you’re already retired, you may still be eligible for a boost to your State Pension in the following circumstances.
You’re married, you retired before 6 April 2016, and you receive less than 60% of your husband’s State Pension
In the post-war years, as men were typically the primary earners and women didn’t work for as many years, married women were given a proportion of their husband’s State Pension. This remained the case until 6 April 2016
If you’re married and you reached State Pension age before then, you could be entitled to a boosted pension amount.
You’re a widow, and your State Pension didn’t increase when your husband died
Widows will often see their basic State Pension increase when their husband dies, based on their late husband’s contribution, potentially up to a maximum of £134.25 a week in 2020/21.
Depending on your late husband’s date of birth, you may also be able to inherit between 50% and 100% of his additional State Pension (also known as SERPS – State Earnings-Related Pension Scheme – or Second State Pension).
As a general rule, if you were widowed and your State Pension didn’t increase, it’s worth checking if you’re being paid the right amount.
You’re a woman over the age of 80 who receives a State Pension of less than £80.45 per week
As we have seen, the State Pension you get usually depends on your National Insurance contributions.
However, if you’re aged 80 or over and your State Pension is less than £80.45 per week, you may be eligible for the ‘category D’ non-contributory State Pension which isn’t dependent on the National Insurance contributions you or your spouse may have made. This tops up your State Pension to £80.45 per week.
You’re divorced, and you reached State Pension age without remarrying
If you’re a woman who was married and divorced, and you reached State Pension age without remarrying, you can substitute the National Insurance record of your ex-husband for your own up to the date of your divorce.
This means you may be eligible for an increased State Pension, potentially up to 100% (£134.25 a week in 2020/21).
Get in touch
As pension specialists, we’re ideally placed to help you ensure you benefit from the State Pension you’re entitled to in retirement. We can also help you put a plan in place to ensure you can maintain your lifestyle when you decide to stop working, and we can help with pension issues arising on divorce or death.
To find out more, email email@example.com or call us on 01189 876655.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
Workplace pensions are regulated by The Pension Regulator.