The UK State Pension can be a useful ‘top-up’ to a personal pension. And if you’ve missed making some of your contributions over the years there’s now an opportunity to fill any gaps. Jack Lear, our UK Financial Planning Manager, takes a look at what’s possible.
The State Pension was established after the Second World War, as a method of enabling people in the UK to build their own retirement pot. Linked to earnings and inflation it offers a solid source of income and can be a useful subsidy to personal pensions. As well as being available to those in the UK, it can also be claimed by British expats in overseas countries which have a social security agreement in place with the UK. Operating as a contributory scheme, men born after 1951 or women born after 1953 can claim a full new State Pension as long as 35 years of National Insurance payments have been made.
But if you’ve spent time working overseas, taken career breaks to care for children or family members or not worked for other reasons, there may be gaps in those contributions. As a result, you might not qualify for a full pension, and it can be a useful addition to factor into your retirement income pot – the full single-tier State Pension is £203.85 per week; the equivalent to £10,600.20 per year from 6th April 2023.
Topping up contributions your state pension
There’s now an opportunity to top up contributions and the UK government have just extended the deadline you have to make up any shortfall. Until 5 April 2025 it’s now possible to cover any payments which have been missed since 2006. Once this window closes it will only be possible to back-date any contributions from the past six years.
This top-up option applies to anyone reaching State Pension age from April 2016. Covering a full year’s gap is possible by paying £824. In return you’ll receive an additional £275 per year in State Pension payments, meaning in just three years it’ll have paid for itself – a sensible step when considering how to boost your retirement pot.
This decision by the Government was taken after the number of enquiries about missed payments increased. There has also been raised awareness of the State Pension following controversy last year over whether the triple-lock rule would be upheld. This saw the State Pension rising by 10.1% in line with soaring inflation, honouring the protocol which sees the State Pension rise each year by either annual inflation, average earnings growth, or 2.5% – whichever is the greatest.
Further information about making up any missed contributions can be made through the Future Pension Centre at the Department for Work and Pensions.
To discuss any aspect of your pension planning or retirement income please contact your nearest office.