MIKE WARBURTON TAX HACKS

Britain’s state pension was the lowest out of the 35 developed countries examined for a recent report. Someone starting work today can expect to retire on a state pension of 29pc of the average wage, compared with the Organisation for Economic Co-operation and Development (OECD) average of 63pc.

In particular, married women have been let down. The recent ruling by the High Court against campaigners arguing that changes to the state pension age are unfair is a further blow.

Anyone reaching state pension age on or after April 6 2016 should qualify for the new state pension. The maximum is £168.80 a week (or around £8,778 a year), provided you have at least 35 “qualifying” years of National Insurance (NI) contributions.

Not everybody appreciates that state pension is taxable. This is because the PAYE system usually allocates personal allowances against it. Below I’ll share some tips and tricks on how you can increase your state pension.

1. APPLY FOR YOUR STATE PENSION FORECAST

You can do this online using your “Government Gateway ID” at gov. uk/check-state-pension. This provides a helpful summary of the qualifying years you have achieved, identifies any gaps in your record and tells you what you can expect to receive if you continue to contribute until your state pension retirement date.

2. IF YOU HAVE MISSING YEARS, YOU MAY BE ABLE TO PAY VOLUNTARY CONTRIBUTIONS

People who have taken career breaks and are a few years short of the 35 needed can make voluntary contributions.

This can be a very worthwhile investment. For example, buying a week’s worth of “class 3” contributions costs £15. A year’s worth, which costs £780, would add an £250 a year to your pension at current rates.

That is equivalent to an annuity rate of 32pc, well above anything available on the market, and you also get the Government-backed “triple lock” to protect against inflation.

If you are self-employed with missing “class 2” contributions, buying these at a rate of £2 a week is even better value.

On the other hand, there is no point in paying voluntary contributions if you expect to achieve sufficient credits anyway.

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3. YOU CAN PAY TO MAKE UP GAPS IN THE PAST SIX YEARS, AND SOMETIMES EVEN EARLIER

The rules on qualifying years changed in 2016. Those starting a record after this date require 35 years for a full record. Before then, the qualifying period was longer. Most people will straddle this date, and complicated rules apply. Fortunately, this is all worked out for you and explained on your pension forecast.

4. THERE ARE OTHER WAYS YOU CAN OBTAIN NI CREDITS ON YOUR RECORD

For example, if you are registered to receive child benefit for a given tax year, this will count as a qualifying year. There is a nasty trap here, because if you or your spouse has income of more than £60,000, you may have decided that it is not worth registering for the benefit because it would be clawed back in tax anyway.

However, you should still register even if you do not claim, as it will then become a qualifying year on your contribution record. Registration can only be backdated for three months.

5. STATE PENSION IS NOT PAID AUTOMATICALLY

You can claim it online, by phone or by mailing in a claim form. However, it may be worth deferring claiming your pension because for each nine weeks you don’t take it, the payments will increase by 1pc. So if you defer for a year, your pension will increase by 5.8pc.

This may be sensible if you are still working and paying tax at a higher rate now than you expect when you retire and take your pension. The deferment uplift was higher for those reaching pension age before 2016 under the old rules, and some may still be deferring at this rate.

I reached my state pension age of 65 in 2012 (when the deferment rate was 10.4pc a year) and worked for five more years, with my pension boosted

by 50pc by the time I took it.

6. IF YOU DEFERRED BEFORE 2016 YOU CAN TAKE AN ENHANCED PENSION OR CLAIM A LUMP SUM

There is a tax trick here, because the lump sum is not taxed in the same way as other pension income. Instead of being added to your other income, the lump sum is taxed at the rate you are already paying. The trick is to retire at the end of the tax year but take the lump sum in the following year when your income and tax rate is less and you may not even be a taxpayer.

How I increased my state pension by 50pc – and what you can do now to maximise your retirement income

If you have gaps in your NI record, voluntary contributions can be a very good investment 35 ‘Qualifying’ years of NI contributions needed to claim the maximum state pension

7. IF YOU MOVE ABROAD, KEEP PAYING NATIONAL INSURANCE

If you have had enough of British politics and decide to emigrate, do not ignore the state pension system.

My brother emigrated 40 years ago but continued paying class 3 voluntary contributions. Since he reached 65, both he and his wife have been receiving a state pension.

Waspi campaigners argued against the rise in women’s state pension age