Your state pension is based upon your national insurance contributions. The amount you will receive is based on the qualifying years you have. To check that, there are a few steps to take.
Firstly, visit the government website at gov.uk/check-state-pension for your state pension forecast. You’ll need your National Insurance number and personal information to sign in.
Once signed in, you’ll see your state pension forecast which tells you how much you can expect to receive based on your current contributions. It will also show your state pension age and the earliest date you can start claiming.
After viewing your state pension forecast, you can click through to check your National Insurance record directly on the same site. This will show you how many years of contributions you’ve made and highlight any gaps.
Look for any years where you didn’t make full contributions. These gaps could mean a lower state pension, but they can often be filled to boost your entitlement.
You can make voluntary National Insurance contributions to fill in any gaps.
This is especially useful if you were not working, living abroad, or earning below the lower earnings limit in certain years.
Before making any payments, it’s important to calculate whether topping up will significantly increase your state pension.
You can arrange voluntary contributions through HM Revenue & Customs (HMRC). The cost per missing year is typically set at a standard rate which you can find on the GOV.UK website.
However, recent discoveries have uncovered significant errors in state pension payments, particularly affecting women born before April 1953, widows, widowers, and divorced individuals. These errors often involve miscalculations based on a spouse’s National Insurance contributions.
If your spouse reached pension age or died before April 2016, you might be owed money, as errors in calculating these benefits have surfaced.
The Department for Work and Pensions (DWP) is correcting some mistakes, but many cases are still unaddressed. You should review your situation, especially if you were told you weren’t entitled to additional payments.
Check your entitlement by contacting the Pension Service at www.gov.uk/contact-pension-service to verify if you’ve been underpaid.
You can also use a useful online tool by LCP to assess inherited pension amounts here: https://www.lcp.com/en/our-impact/inherited-state-pensions-for-widows-and-widowers
Finally, should you defer your state pension? I have calculated the benefits and cost of either taking the pension at age 66 or deferring for one year. If you defer for one year, the uplift at year two is 5.8%.
After that, the pension increases by the triple lock of automatically increasing the state pension from April each year by the maximum of three measures: the rate of inflation (measured by the consumer price index, CPI); average wage growth (the average weekly earnings index); or 2.5%.
So, the choice of deferring for one year would mean you lose out on that first year’s income but benefit from the 5.8% uplift after year one.
So, at what point are you better off? If I assume an annual increase of 2.5% to both the original and now uplifted pension, you will get your money back at year 24. So, a 66-year-old would have to live until age 90 which is the breakeven point! Hmmmm.
The life expectancy for a male at the retirement date of 66 is 19 years. The life expectancy for a female is 21 years.
So, it isn’t worthwhile. Bearing in mind that we chose 2.5% as an inflation target because of the triple lock as mentioned above.
So, we ran the same calculations at 2%. At 2% inflation, the crossover point is at year 23. We can therefore conclude, if we believed pension increases to be lower than 2.5%, the crossover point moves closer than the 24 years, and vice versa.
For the government’s benefit, I calculated (at 2.5% inflationary increases) that to balance the cumulative pension amounts at the average life expectancy of 19 years for a 66-year-old UK male, the required uplift percentage for deferring the state pension for one year would need to be approximately 6.67% in year one.
For a female it would need to be 6.12% as a 66-year-old woman is expected to live two years longer.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a pension query, call Darren McKeever on 028 6863 2692.
