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| How to maximise your state pension | How to maximise your state pension |
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| For most Britons, the state pension is the bedrock of their retirement fund. It will make up more than a third of the total income of those retiring in 2015, according to research from pensions firm Prudential. And for one in seven, the state pension and other benefits are likely to be the only retirement income they have. | For most Britons, the state pension is the bedrock of their retirement fund. It will make up more than a third of the total income of those retiring in 2015, according to research from pensions firm Prudential. And for one in seven, the state pension and other benefits are likely to be the only retirement income they have. |
| Related: Pass it on: how to leave your pension to someone else | |
| It isn’t riches: the maximum a single person can currently get is £115.95 a week, or just over £6,000 a year. Couples can get twice that amount, a combined £231.90, or just over £12,000 a year. That is less than half the average UK full-time earnings of £518 a week, or nearly £27,000 a year. So brace yourself for a fall in income if you don’t have other savings to rely on. | It isn’t riches: the maximum a single person can currently get is £115.95 a week, or just over £6,000 a year. Couples can get twice that amount, a combined £231.90, or just over £12,000 a year. That is less than half the average UK full-time earnings of £518 a week, or nearly £27,000 a year. So brace yourself for a fall in income if you don’t have other savings to rely on. |
| Some people will be even worse off as not everybody gets the full basic state pension. How much you get depends on contributions you make during your working lifetime. So you need to make sure you qualify for the maximum amount. | Some people will be even worse off as not everybody gets the full basic state pension. How much you get depends on contributions you make during your working lifetime. So you need to make sure you qualify for the maximum amount. |
| Pension forecast | Pension forecast |
| Start by working out how much you are likely to get when you reach state pension age, currently 65 for men and 63 for women (rising to 66 for both by 2020). | Start by working out how much you are likely to get when you reach state pension age, currently 65 for men and 63 for women (rising to 66 for both by 2020). |
| “The simplest way to get a state pension forecast is to call the Future Pension Centre on 0345 3000 168 and request one,” says Damien Fahy, director of personal finance website Moneytothemasses.com. | “The simplest way to get a state pension forecast is to call the Future Pension Centre on 0345 3000 168 and request one,” says Damien Fahy, director of personal finance website Moneytothemasses.com. |
| Alternatively, you can get a statement online provided you are more than four months away from state pension age. You can work out exactly when you will reach the state pension age using the government’s state pension age calculator. | Alternatively, you can get a statement online provided you are more than four months away from state pension age. You can work out exactly when you will reach the state pension age using the government’s state pension age calculator. |
| The forecast will show how much state pension you are likely to get, plus any further state second pension entitlement you have accumulated, based on your national insurance (NI) contributions. | The forecast will show how much state pension you are likely to get, plus any further state second pension entitlement you have accumulated, based on your national insurance (NI) contributions. |
| To get the full basic state pension you currently need to have 30 qualifying years of NI contributions. | To get the full basic state pension you currently need to have 30 qualifying years of NI contributions. |
| You can check for gaps in your NI record by requesting an online statement, and buy extra years by making voluntary NI contributions. You can plug any gap in your contributions from the past six years. | You can check for gaps in your NI record by requesting an online statement, and buy extra years by making voluntary NI contributions. You can plug any gap in your contributions from the past six years. |
| Related: Where do pensioners get their cash? | |
| Those who reach state pension age before 6 April 2016 – men born before 6 April 1951 and women born before 5 April 1953 – can make additional contributions to top up their state pension by up to £1,300 a year. “Between October 2015 and April 2017 you can buy extra state pension worth up to £25 a week by paying voluntary class 3a NI contributions,” says Vince Smith-Hughes, pensions expert at Prudential. | Those who reach state pension age before 6 April 2016 – men born before 6 April 1951 and women born before 5 April 1953 – can make additional contributions to top up their state pension by up to £1,300 a year. “Between October 2015 and April 2017 you can buy extra state pension worth up to £25 a week by paying voluntary class 3a NI contributions,” says Vince Smith-Hughes, pensions expert at Prudential. |
| How much you have to pay partly depends on your age. A man aged 68 in October who wants to top up his pension would pay a lump sum of £827 for each extra £1 of weekly state pension he would like to receive for the rest of his life. So buying an extra £5 a week would cost him £4,135, while the maximum £25 a week top-up would cost £20,675. However, a man aged 65 on that date would have to pay £22,250 (or £21,775 at age 66). Being slightly younger, he would have to pay slightly more because his life expectancy is greater – which means the state will typically have to pay out the extra pension for a longer period. | How much you have to pay partly depends on your age. A man aged 68 in October who wants to top up his pension would pay a lump sum of £827 for each extra £1 of weekly state pension he would like to receive for the rest of his life. So buying an extra £5 a week would cost him £4,135, while the maximum £25 a week top-up would cost £20,675. However, a man aged 65 on that date would have to pay £22,250 (or £21,775 at age 66). Being slightly younger, he would have to pay slightly more because his life expectancy is greater – which means the state will typically have to pay out the extra pension for a longer period. |
| This online calculator can help you decide whether topping up is worth doing. | This online calculator can help you decide whether topping up is worth doing. |
| Smith-Hughes says the advantage of buying extra state pension is that the additional income you buy will rise in line with the consumer prices index inflation measure; and for married couples or civil partners, surviving partners get 50% of the pension on death. | Smith-Hughes says the advantage of buying extra state pension is that the additional income you buy will rise in line with the consumer prices index inflation measure; and for married couples or civil partners, surviving partners get 50% of the pension on death. |
| However, he warns that those on low incomes should think carefully before buying extra state pension. This is because it will be taken into account when assessing eligibility for means-tested state benefits such as housing benefit, council tax reduction and pension credit, which tops up your weekly income if it is below £151.20 (for single people) or £230.85 (for couples). | However, he warns that those on low incomes should think carefully before buying extra state pension. This is because it will be taken into account when assessing eligibility for means-tested state benefits such as housing benefit, council tax reduction and pension credit, which tops up your weekly income if it is below £151.20 (for single people) or £230.85 (for couples). |
| Flat-rate state pension | Flat-rate state pension |
| From 6 April 2016, the new so-called flat-rate state pension kicks in, replacing the current basic state pension and state second pension. Its exact value hasn’t been confirmed yet, but it is expected to be at least £151.25 a week, or £7,865 a year. | From 6 April 2016, the new so-called flat-rate state pension kicks in, replacing the current basic state pension and state second pension. Its exact value hasn’t been confirmed yet, but it is expected to be at least £151.25 a week, or £7,865 a year. |
| Justin Modray at Candid Financial Advice says: “The pension is poorly named, because it gives the impression that everyone will get the same, and they won’t.” | Justin Modray at Candid Financial Advice says: “The pension is poorly named, because it gives the impression that everyone will get the same, and they won’t.” |
| Once again, how much you get will depend on your NI contributions, and you will now need to have paid them for 35 years to get the full amount. | Once again, how much you get will depend on your NI contributions, and you will now need to have paid them for 35 years to get the full amount. |
| Your pension forecast won’t show how much you will get under the new system, but it should at least give you a rough idea, Modray says. “You can use this to decide whether to top your state pension with voluntary NI contributions or work out how much you need to save in other sources, such as a pension or tax-efficient individual savings account (Isa).” | Your pension forecast won’t show how much you will get under the new system, but it should at least give you a rough idea, Modray says. “You can use this to decide whether to top your state pension with voluntary NI contributions or work out how much you need to save in other sources, such as a pension or tax-efficient individual savings account (Isa).” |
| Putting off your pension | Putting off your pension |
| You don’t have to take your state pension as soon as you reach the state retirement age. Instead, you can defer taking the money and in return draw a larger pension when you do finally claim it. | You don’t have to take your state pension as soon as you reach the state retirement age. Instead, you can defer taking the money and in return draw a larger pension when you do finally claim it. |
| Andrew Tully, pensions technical director at Retirement Advantage, says this can give your pension a sizeable boost. “If you reach state pension age before 6 April 2016, you will get an extra 1% on your pension for each five weeks you defer.” | Andrew Tully, pensions technical director at Retirement Advantage, says this can give your pension a sizeable boost. “If you reach state pension age before 6 April 2016, you will get an extra 1% on your pension for each five weeks you defer.” |
| Deferring your pension is worth considering if you plan to carry on working, or have other forms of income to live on. “By deferring for a year, a single person’s pension would rise to £128.01 a week, giving them an extra £627 a year. Alternatively, you can take that money as a lump sum instead, and the government will give you £6,180.” | Deferring your pension is worth considering if you plan to carry on working, or have other forms of income to live on. “By deferring for a year, a single person’s pension would rise to £128.01 a week, giving them an extra £627 a year. Alternatively, you can take that money as a lump sum instead, and the government will give you £6,180.” |
| You have to set this against the fact that you have missed out on one year of pension at £115.95 a week, worth £6,029. | You have to set this against the fact that you have missed out on one year of pension at £115.95 a week, worth £6,029. |
| Tully says that, once you start claiming: “You would need to live another nine years, eight months, to break even. After that, you are into profit.” The better your health and longer your life expectancy, the greater the potential benefits from pension deferral. | Tully says that, once you start claiming: “You would need to live another nine years, eight months, to break even. After that, you are into profit.” The better your health and longer your life expectancy, the greater the potential benefits from pension deferral. |
| You don’t get more state second pension by deferring, so think carefully before you do this. | You don’t get more state second pension by deferring, so think carefully before you do this. |
| Deferral will make less sense if you reach state pension age on or after 6 April 2016. In this situation you will have to defer your pension for nine weeks for each 1% of uplift, which to someone who gets the maximum state pension is worth only £456 for each year you delay, Tully says. “You would need to live to 80 to make the sums work.” | Deferral will make less sense if you reach state pension age on or after 6 April 2016. In this situation you will have to defer your pension for nine weeks for each 1% of uplift, which to someone who gets the maximum state pension is worth only £456 for each year you delay, Tully says. “You would need to live to 80 to make the sums work.” |
| This is a complicated area, but you can get free advice by visiting the Pensions Advisory Service website or calling 0300 123 1047. | This is a complicated area, but you can get free advice by visiting the Pensions Advisory Service website or calling 0300 123 1047. |
| Retiring overseas | Retiring overseas |
| You can still claim your state pension if you retire overseas. However, in around 170 countries the amount you receive will be frozen at the point you cease to be resident in the UK. | You can still claim your state pension if you retire overseas. However, in around 170 countries the amount you receive will be frozen at the point you cease to be resident in the UK. |
| If you retire in Canada, South Africa, Australia or New Zealand, or Commonwealth countries such as Pakistan, India, Sri Lanka, Bangladesh and Nigeria, your pension will not be uprated annually, despite a long-running campaign by British expats. Find out which countries are affected. This means its buying power will be eroded, year after year, in real terms. | If you retire in Canada, South Africa, Australia or New Zealand, or Commonwealth countries such as Pakistan, India, Sri Lanka, Bangladesh and Nigeria, your pension will not be uprated annually, despite a long-running campaign by British expats. Find out which countries are affected. This means its buying power will be eroded, year after year, in real terms. |
| It will, however, be index-linked if you retire in the EU and certain other countries with which the UK has a reciprocal pensions agreement, including the US, Israel, Jamaica and Barbados. | It will, however, be index-linked if you retire in the EU and certain other countries with which the UK has a reciprocal pensions agreement, including the US, Israel, Jamaica and Barbados. |
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