State pension ‘not enough’ to retire on says financial advisor
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As people approach retirement age, they will start to think about how much income they will have to live on once they stop working. The state pension is a big part of this, so it is important people know steps they can take to improve their state pension forecast once they’ve reached state pension age.
One thing to consider is that the new state pension is based on people’s National Insurance (NI) record when they reach state pension age.
Britons usually need to have 10 qualifying years on their NI record to get any new state pension.
The more qualifying years someone has, the more state pension they will get.
People need 35 qualifying years to get the new full state pension.
Qualifying years are accumulated usually through working, but people can also get NI credits if they are out of work and are receiving certain benefits, such as Jobseeker’s Allowance.
The full new state pension is currently £179.60 a week, which adds up to £9,339.20 for a year.
Suzanne Williams, a chartered financial planner at Old Mill, urged people who are of state pension age to check whether they are entitled to the full state pension or not.
She said: “If you have not got the full state pension, you should ring the Department for Work and Pensions (DWP) to find out if you have any gaps in your National Insurance (NI) that could be bought by making voluntary class three contributions.”
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Gaps in an NI record could have occurred for various reasons, such as being employed but only earning a low amount or being unemployed but not claiming benefits.
Not only could these gaps limit the amount of state pension someone could get, it could also mean they do not qualify for certain benefits later in life.
Making voluntary contributions means deciding to pay additional NI and therefore fill any gaps.
Something else to consider for people looking to increase the amount of state pension they get is to defer their pension.
State pension deferral simply means not claiming the state pension when someone becomes eligible for it.
By waiting long enough to eventually claim, and then subsequently receiving the state pension for a sustained period, people could end up with more money in the long run.
However, it can often take many years of deferral and even more time actually receiving the state pension to make it worthwhile, so there may be some risk involved.
Ms Williams spoke about the decision of when to take the state pension.
She said: “The next decision is when to take the state pension. It’s not paid out automatically on reaching state pension age, you do have to claim it.
“Although the reward for state pension deferral has been reduced, for those who plan to work past state pension age, which is currently 66, it can make sense from a tax point of view to consider delaying taking it for some people (generally if you will move to a lower rate of tax in the future, e.g. from higher rate to basic rate).
For every nine weeks you defer, you’ll get a pension increase of one percent. This works out at 5.8 percent for every full year.
“Whether it is worthwhile or not will depend on your tax position now and in the future and expected longevity, as for each year you defer you are giving up £9,339.20 of income for an increase of £541.84 of pension.”
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