The state pension is one of the largest elephants in the room of British society – but there are several ways you can actually make it work for you.
Currently the state pension’ full rate is £9,630 a year – or £185.15 a week, although it is rising to £203.85 in April this year.
Even with the April rate, this will only give Brits on the standard rate pension a take home annual rate of £10,600 – which is less than a one night stay in some hotel rooms in London.
However, there are a number of tips, tricks and sacrifices you can make now to ensure your retirement is more relaxing.
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Here’s seven ways you can supersize your pension.
These seven tips can help supersize your pension for you and your loved ones
1. Build up entitlement and game the old state pension
In 2016, the Government rolled out a ‘flat- rate’ system for the state pension, where anyone with 35 years’ worth of National Insurance contributions receives the full new payout of £185.15 a week.
This is paid to anyone reaching pension age after April 6, 2016, while those who reached it before that date receive the ‘basic’ state pension (plus any earnings-related top-ups, see below).
The basic pension, also known as the ‘old’ state pension, pays up to £141.85 a week, or £7,376 a year.
Anyone on the old state pension can build up entitlement to extra income. Many are entitled to an additional earnings-related element of the state pension. This is the first boost the lucky ten used to ‘supersize’ their incomes.
Most people receive this extra pension, known as ‘Serps’ (state earnings-related pension scheme), on top of their basic payment.
Some will receive only a few pounds extra. But others can receive as much as the full basic pension of £141.85 plus a maximum Serps pension of £185.90.
This adds up to a total of £327.75 a week, or £17,043 a year.
Between 1961 and 1975 you could also build up a ‘graduated retirement benefit’, which takes the total a few pounds higher.
2. Wait to claim your pension and reap the rewards
Another big boost for the thrifty comes from deferring the date at which you start receiving the pension.
Doing this means you give up some income in the years after hitting state pension age (currently 66). But when you do start receiving it, the amount is permanently higher.
Your state pension increases for every week you defer, as long as it’s for at least nine weeks after you have reached state pension age.
Under the new system, your state pension rises by 1 per cent for every nine weeks you defer — amounting to 5.8 per cent for every year.
But under the old rules, the basic pension increased by 10.4 per cent for every year you deferred.
This meant someone on a basic pension plus Serps of £300 a week would be able to boost their weekly payout to £580 by delaying their start date by nine years.
3. Pay your National Insurance to keep the full slice of your pie
If you’re going to be using the new state pension, it’s vital to keep on top of paying your National Insurance contributions.
At the moment, Brits need to pay NI for 35 years to receive the full amount.
If you only worked for 28 of those before opting to receive your pension, you’d only receive 28/35 of the pension pie – roughly £148.
4. Apply for National Insurance credits
As National Insurance is typically taken from working people’s wages, those out of work due to personal or health issues can fall behind on building their entitlement.
A way to remedy this is by applying for NI credits.
There are two types of NI credits: Class 1 and Class 2.
Class 1 credits count towards your state pension and may help you qualify for some other benefits including New Style Jobseeker’s Allowance whereas Class 3 count towards your State Pension only.
People collecting child benefit should receive NI credits automatically and it is possible to transfer them to a partner who is living with you if you have paid a year’s National Insurance contribution previously.
It pays to keep adding to your pension over the course of your working life
5. Make National Insurance voluntary contributions
If you’re self-employed or living abroad a great way to stay topped up on your National Insurance is by paying voluntary contributions.
You can usually pay voluntary contributions for the past 6 years with the deadline falling on April 5 each year.
You can pay Class 2 NI contributions if you’re self-employed to qualify for benefits like the State Pension.
The most common way to do this is by paying as part of your self assessment tax bill.
6. Keep on top of your pension pots and merge to grow
If you’ve worked for a number of companies throughout your career it’s likely you have pension sums brewing in a number of pots.
This is confusing to navigate from a personal perspective but also not always the best use of your pensions time.
With a bit of attention, it is sometimes possible to merge your different pension pots into one and place them in a scheme that maximizes the interest they earn over time.
7. Keep topping up whenever you can
It goes without saying, but one of the best ways to ensure your pension is stacked come retirement is to continually add to it throughout your life.
This can be done in a number of ways besides just depositing money in yourself.
Some employers will offer a salary-sacrifice scheme in which sections of your paycheck will automatically go into your pot with the company then adding its own contribution to the scheme.
It is also worth noting there are different tax perks for money deposited in pensions as part of windfall, inheritance and redundancy.
As per government policy, the first £30,000 of redundancy pay is tax free which means the money added in to the pot should be boosted by around 20%.
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