According to a recent Martin Lewis article, many people may be eligible to pay extra contributions to gain thousands of pounds of State Pension income. Knowing how to secure your future State Pension value relies on the number of National Insurance contributions you have made. We explore this topic in more detail to give you an up-to-date guide on the state pension.
Many people are unaware that their State Pension value could be far less than they expect, due to missing years of National Insurance contributions. MSE Founder, Martin Lewis, relayed the experience of one person who was 4 years short of their National Insurance contributions. After making voluntary contributions to cover the missing years, this person is now expected to gain an extra £20.83 per week.
When you calculate this person’s additional pension income over a 20-year retirement period, this small weekly sum will result in an extra £21,000. So, how do you know what your State Pension will look like, and what can you do when it comes to missing contributions?
Calculating your State Pension income
At the time of writing (June 2024), the full State Pension rate is £221.20 per week, which equates to around £11,502 per year. To be eligible for the full State Pension, usually, you’ll need to have made 35 years of National Insurance contributions throughout your working life. Many people have gaps in their contributions due to time off for childcare, periods of unemployment or working abroad.
Having such gaps could lead to you having less State Pension income when you reach the eligible age. But there are also other instances where you might not get the full State Pension amount. Some people may have been ‘contracted out’ if their National Insurance record began before April 2016.
Being ‘contracted out’ is when an employer pays less into your State Pension and more into a workplace or private pension. If this has happened to you, then you might need to pay more than 35 years of National Insurance contributions to get the full State Pension. If unsure, check an old payslip, call the pension provider, or use the Pension Tracing Service.
Check your state pension forecast here: https://www.gov.uk/check-state-pension
How to top up missing National Insurance contributions
You can usually make up any missing National Insurance contributions voluntarily from the past 6 years. However, the government has also extended the deadline for topping up contributions that go back further than 6 years. Men born after 5 April 1951 and women after 5 April 1953 currently have until 5 April 2025 to make up any shortfall in contributions. For more information, see our blog – How do I find out if I have underpaid my State Pension?
As many of us won’t receive our State Pension until age 66 or 67, there can be a significant income gap if you retire early. Therefore, it’s essential to make sure that you have enough savings to cover your retirement. A private pension is worth considering because you can access your income from age 55 (57 from April 2028). Also, if you were to withdraw 25% of your private pension income as a lump sum then it’s tax free.
Pension Advice, Nottingham and Lincoln
The amount of National Insurance contributions you make up today could result in more income when you reach State Pension age. It’s also important to check your pension income and savings to make sure that you have enough to last you throughout your retirement. The sooner you start saving and paying into a pension, the more financially secure you will be.
Our financial planners can review your pensions and savings, and we’ll also carry out a cash-flow planning exercise. Using sophisticated software, we can provide you with a Lifetime Wealth Forecast to give you full peace of mind regarding your financial planning.
Not only will this forecast help you plan your lifestyle today, but it’ll help you make sensible plans for the future. Our team can help you achieve your retirement aims and aspirations.
If you would like a pension and savings review, get in touch to speak to our financial planning team.
Sources:
https://www.moneysavingexpert.com/tips/2024/05/14/
https://www.moneysavingexpert.com/tips/2024/05/07/#hiya
https://www.gov.uk/new-state-pension/what-youll-get
https://www.gov.uk/additional-state-pension
https://www.gov.uk/voluntary-national-insurance-contributions/deadlines
