Money saving expert Martin Lewis has issued a warning to his audience over state pensions. According to the money guru, a person typically needs around 30 years' worth of National Insurance (NI) contributions to receive a full basic state pension upon retirement.
To receive the full new state pension, people are usually required to have an extra five years on top of this - meaning it's important to see if you have any gaps in payments into National Insurance prior to retirement.
This could reduce how much you receive. One woman recently told Martin on his BBC Sounds podcast that she was amazed to discover that she hasn't paid enough in National Insurance to receive the full state pension, with Mr Lewis warning others to not fall into the same circumstance.
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The woman, named Susan, and her husband both worked as teachers and recently took early retirement. They thought they were 'savvy' about their pensions but, after following Mr Lewis’ advice, they decided to check if they had enough NI contributions to claim the full state pension, The Chronicle reports.
They found out they had been partially opted out of SERPS (State Earnings-Related Pension Scheme), a scheme to pay in to get an extra payment on top of the basic state pension. The scheme was part of the previous basic state pension, which applies to those who reached state pension age before April 6, 2016.
Anyone who retires after this date will get the new state pension instead.
Susan said: “I was absolutely staggered because I thought I’d paid shedloads of National Insurance in my time. So we got hold of Teachers’ Pensions and that’s what we were advised, we were given the amounts to make up and we’ve started doing that now.”
They found it was worth paying in to top up contributions across four years for Susan, and across two years for her husband. Mr Lewis went on to explain that on average, if a person pays in £800 in contributions, they will get £275 a year more in state pension payments.
He said: “As typical life expectancy is around 20 years [after reaching the state pension age], the £800 will turn into £5,000 index linked, plus inflation. The best investment you will ever have.”
Britons can check if they have any gaps in their NI record using the state pension forecast tool on the Government website. Now is a good time to check as until the end of this tax year, in April, people can pay contributions as far back as 2006, 10 years further back from the usual limit, of up to six years ago.
A woman appeared on the ITV Martin Lewis Money Show this week who paid in just under £1,000 in contributions and is on track to receive an extra £11,150 in state pension payments. The full basic state pension is currently £141.85 a week while the full new state pension is £185.15 a week.
Payments are increasing by 10.1 percent in April with the full basic state pension increasing to £156.20 a week while the full new state pension is going up to £203.85 a week. Martin has also encouraged state pensioners to see if they can boost their income by claiming Pension Credit.
The income top up is available to pensioners on low incomes and can increase a person’s income by up to £3,500 a year. With the current rates, Pension Credit tops up a person’s weekly income to £182.60 a week for single claimants and up to £278.70 for couples.
Additional payments are available for people depending on their circumstances, such as a person who cares for another adult. The benefit also provides access to several other means of Government support, such as free TV licences for people aged 75 and over.
Pension Credit payments are also going up by 10.1 per cent in April, with the weekly top up for singles increasing to £201.05 a week while the couples top up will increase to £306.85 a week.
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