More than two million people of retirement age in Britain receive less than £100 a week in state pension payments, an analysis of official figures has revealed.
Retirees on the full flat rate state pension currently get £179.60 a week or around £9,300 a year, if they reached state pension age after April 2016. The old basic state pension, for people who reached state pension age before that date, is £137.60 a week, or around £7,200 a year.
But many will not receive either of those full rates. This can be for a number of reasons, including failing to accumulate enough national insurance credits.
Tough times: Over 2m retirees in Britain receive less than £100 a week in state pension payments
Chancellor Rishi Sunak has suggested that the ‘triple lock’ on pensions, which guarantees that the state pension increases by the highest out of inflation, average earnings or 2.5 per cent, could be scrapped amid the spiralling costs involved.
No firm decision by the Government on the fate of the triple lock has been unveiled, but any changes would affect millions of retirees and the futures of those still in work.
For those who already or fear they will receive a below-par state pension, This is Money and Hargreaves Lansdown outline why this may be the case – and more importantly what they can do to potentially boost their retirement payout.
Why is my state pension lower than expected?
The state pension system is complicated and how much money people receive each week for it depends on a number of factors.
Figures from Hargreaves Lansdown suggest 2.1million people in Britain receive less than £100 a week in state pension payments.
There are two main reasons why some people may get lower state pension payments than they expected.
1. Insufficient National Insurance credits
A present, and for those who retired after April 2016, retirees need 35 years worth of National Insurance credits to qualify for a full state pension.
If you took time out of the workplace, lived abroad or you did not earn enough to qualify for a full national insurance year, your state pension entitlement might be affected, experts at Hargreaves Lansdown said.
In essence, how much you get each week depends on how many so-called ‘qualifying years’ of NI contributions you have.
People who retired before April 2016 are subject to different rules. As a starting point, if you reached state pension age on or after 6 April 2010 you will need 30 years worth of NI contributions to qualify for a full state pension.
However, you can build up NI credits for time spent raising a family, or, for instance, if you care for someone who is disabled or sick, or have been enrolled in full-time training.
2. You have been ‘contracted out’
Another major reason people may get a lower state pension than they expected is because they have, at some point in their life, ‘contracted out’ of the state pension.
Under the old state pension system which existed before April 2016, you could contract out of the ‘Additional State Pension’ part of the state pension.
This meant a worker and their employer paid less in NI contributions. So, the worker’s state pension payments ended up being lower, but their workplace or personal pension was topped up.
3. If you are a woman or stay-at-home parent
Tens of thousands of women in Britain are likely to have been underpaid the state pension, and many could be due thousands of pounds.
Married women who hit state pension age before April 2016, as well as widows, divorcees and the over-80s, whether married or not, should check they are receiving the correct state pension sum they are entitled to.
Were you underpaid the state pension?
Some older women are owed big sums of money in state pension arrears by the Department for Work and Pensions in a scandal uncovered by This is Money and former Pensions Minister Steve Webb.
Are you affected, and what should you do? Find out here.
Separately, over 200,000 parents a year are believed to be at risk of missing out on the full state pension in later life because of mistakes in the way they claim Child Benefit, according to HM Revenue & Customs.
In circumstances where Child Benefit is registered and paid to the working parent in a household rather than the stay-at-home parent looking after children, the latter can miss out on crucial NI credits.
This could hamper a stay-at-home parent’s eligibility to receive the full state pension.
Helen Morrissey, senior pension and retirement analyst at Hargreaves Lansdown, said: ‘The most recent figures from DWP show more than 2.1m pensioners are receiving less than £100 per week in State Pension, with women overall likely to receive less than men.
‘If you have other sources of income in retirement, this many not be an issue, but for many people the state pension is the backbone of their retirement planning and they could receive a nasty shock if they find they are entitled to less than they thought.’
How can I boost my weekly state pension?
These will not be applicable to everyone and it is a good idea to get some proper professional financial advice before making any big decisions about your pension.
1. Check your entitlement
Getting on top of the state pension system fills many people with dread, as it remains complicated, despite the Government’s attempts to simplify it.
However, one of the best starting points for anyone worried about their future as a retiree is to use the Government’s online tool to figure out what your state pension age is and how much you will be entitled to each week.
The online site also, where applicable, gives suggestions as to how people can increase their state pension payments.
If you are reaching state pension age in more than 30 days you can also telephone the Future Pension Centre helpline by calling 0800 731 0175. Alternatively, a ‘BR19’ form can be submitted by post.
2. Claim Child Benefit
Parents can often miss out on state pension credits when they stay at home to look after their children.
But, if parents claim Child Benefit, they will receive NI credits that count towards their state pension.
Experts at Hargreaves Lansdown said: ‘Many women have missed out on this in the past because their husband claimed the Child Benefit rather than themselves.
‘Others missed out when they opted out of Child Benefit after the introduction of the High-Income Child Benefit Tax Charge.
‘If you claim Child Benefit in your name, then you will get the NI credit towards your state pension.’
3. Specified Adult Childcare Credits
If you are under state pension age and look after a family member under the age of 12 while their parent or main carer goes back to work, you could qualify for NI credits under Specified Adult Childcare Credit.
Grandparents, for instance, can potentially use this to bolster their state pension.
The Government says: ‘Specified Adult Childcare credits work by transferring the NI credit attached to Child Benefit from the Child Benefit recipient to a family member who is providing care for the child.
‘Therefore, if no one has claimed Child Benefit for the child there is no attached NI credit to transfer and Specified Adult Care credits cannot be awarded.’
These credits are only available from April 2011 and you must make an application to receive the NI credits.
4. Know your NI credit rights if you are sick
If you are off work because you are unwell or disabled and receive statutory sick pay or other benefits, the Government may still give you NI credits.
This means that, even though you are unable to work due to illness or disability, you can continue building up your state pension entitlement.
You must be aged 16 or over and below state pension age for the year in which you may be credited.
In some circumstances, you should be given NI credits automatically, for example, if you get employment and support allowance or carer’s allowance. But, in other circumstances, you may have to make a claim.
5. Buy NI credits
If you can spare the cash, it is possible to plug gaps in your NI record by buying voluntary class 3 NI contributions.
Buying a full extra year will cost £800, and you can typically backdate claims for six years, Hargreaves Lansdown said.
Before taking the plunge, you will need to find out if you have any gaps in your NI record, determine if you are eligible to pay voluntary contributions and figure out how much it will cost you.
The Government says that paying voluntary contributions will not always boost your state pension.
It is therefore worth contacting the Government’s Future Pension Centre helpline first to find out if this is something worth doing in your situation.
6. Claim Pension Credit
If you are over state pension age and on a low income then you should check whether you are eligible for Pension Credit.
Pension Credit tops up your weekly income to £177.10 a week if you are single and £270.30 in joint income if you have a partner.
It can also entitle you to other benefits such as help with council tax and a free TV licence for those aged over 75.
Despite having the ability to boost the income of the poorest pensioners take up of this benefit remains stubbornly low with only around 60 per cent of those entitled claiming it, according to Hargreaves Lansdown.
7. Defer your state pension
It is possible to defer your state pension payments. However, this is not an option to be taken lightly and will not be an appropriate for everyone. You should receive professional advice before deciding to defer your payments.
You will need to weigh up the prospect of a bigger state pension in the future against giving up £1,000s of pension income in the short term.
The people who could benefit the most from deferring their state pension payments are those who live the longest. Unless you live to a decent age in retirement, deferring could cost you unfavourably overall.
Triple lock could push state pension to £10k a year
What will happen? All eyes are on Rishi Sunak and the future of the ‘triple lock’
The future of the state pension is a hot topic at the moment, with speculation mounting that Rishi Sunak will scrap the ‘triple lock.’
Older people could see state pensions top £10,000 a year if payouts are hiked in line with wage growth, which has just hit 8.8 per cent due to distortions caused by the pandemic.
A bumper increase is backed by 93 per cent of nearly 20,000 This is Money readers, who voted in a poll to say the triple lock promise to pensioners should be honoured in full.
A separate, nationally representative survey found 46 per cent of UK adults were in favour, rising to 59 per cent among over-50s but lagging at 34 per cent of under-50s.
Under the triple lock, the state pension increases by the highest of price inflation, average earnings growth or 2.5 per cent, but this year it has put Chancellor Rishi Sunak in a bind.
Pay cuts and job losses when the Covid-19 crisis struck last year mean wages appear to be surging right now.
And this artificial readjustment in the labour market could determine the state pension level when the crunch figure is released next month.
Sunak has signalled he might resist due to the cost, even though the Conservative party committed to retaining the triple lock in their last election manifesto.
Elderly people on the full flat rate state pension currently get £179.60 a week or around £9,300 a year, and an 8.8 per cent rise would boost this to £195.40 and around £10,100.
The old basic state pension, not including second state pension or SERPS that people built up on top, is £137.60 or around £7,200 a year. So, this would increase to £149.70 or around £7,800.
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