Retirement may be a while off for some people or just around the corner for others, but pensions expert Helen Morrissey, is urging everyone to give some serious thought to deferring making a claim for State Pension, as it could boost their annual later-life income by more than £600.
Deferring your State Pension, means not claiming it when you reach the official age of retirement and could boost payments of the New State Pension when you do decide to claim it. However, it’s important to note that any extra payments you get from deferring could be taxed.
The State Pension age is now 66 for men and women, but is set to rise to 67 between 2026 and 2028 under current UK Government plans. The full Basic State Pension is now £156.20 for a single person and £249.80 per week for a couple while the full New State Pension for people retiring after 2016 is £203.85 per week.
There are 12.6 million people claiming their State Pension across Great Britain, including more than one million in Scotland. The vast majority of people will rely on this contributory benefit to boost retirement income along with private or workplace pensions.
You can increase the amount of State Pension you will receive by filling any gaps in your National Insurance record. You need at least 10 years for any State Pension payment and around 35 years for the full amount, although this may be more for people who were ‘contracted out’ - find out more on GOV.UK here.
Ms Morrissey said: “When the then Prince Charles celebrated his 65th birthday he became a ‘pension-heir’ able to claim his State Pension. Few of us are wealthy enough to be able to afford to donate our State Pension to charity but if you are like the King and still working and don’t need the money straight away, you could get more from this all-important benefit by deferring claiming it.”
The head of retirement analysis at Hargreaves Lansdown explained that people do not receive their State Pension automatically when they reach retirement age - it has to be claimed. But you can choose not to claim it and defer instead, which is easily done by simply not replying to the letter issued by the Department for Work and Pensions (DWP) prior to your 66th birthday.
For every nine weeks you defer you will receive the equivalent of 1% extra. This works out as just under 5.8% for every 52 weeks. So, if you were entitled to a full New State Pension which is currently around £10,600 per year, you could get an extra £614 by deferring for a year.
Ms Morrissey continued: ‘If you don’t need the extra money straight away, then this could be a handy way of boosting how much you get when you actually do decide to leave work. However, you must be careful that by deferring you don’t affect your entitlement to other benefits you could receive such as Pension Credit.
“The best way of making the most of your State Pension is to make sure you can claim as much as you can. Under current rules you need 35 years’ worth of National Insurance credits to get a full new State Pension. However, many people have gaps in their record due to time spent out of the workforce.”
She said the best way to understand how much you will receive in later life is to get a State Pension forecast which will tell you how much you are on track to get and let you know if you have any gaps in your National Insurance record - you can do this online at GOV.UK here.
She added: “If you do have gaps, then check with DWP to see if you qualified for a benefit during those periods which comes with a National Insurance credit. Examples include Child Benefit and Universal Credit. If this is the case, then you may be able to backdate a claim.
“If you are unable to do this, then you have the option of plugging the gaps by buying voluntary National Insurance credits. Buying a full year currently costs just over £907 - partial years will be cheaper - and for each year you buy you get an extra 1/35ths State Pension - which is just over £300. This means that as long as you live at least three years after reaching the State Pension age you’ve got your money back.”
You can usually buy voluntary National Insurance credits for the previous six tax years but there is a current opportunity for those retiring under the New State Pension system (post 2016) to fill gaps going back to 2006 - this window closes on July 31, 2023.
However, before you rush off to top up your National Insurance record, Ms Morrissey warned: “It is really important to check with DWP whether you will benefit from buying voluntary credits as there may be cases - for instance where you are contracted out - where buying the extra credits does not boost your State Pension.”
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