Getting the most from your state pension pot

THE STATE pension is still the bedrock of most people’s retirement income, which is why scrapping the triple lock was a massive blow for millions. From April, the state pension will rise by 3.1 per cent, giving those who retired before April 2016 an income of £141.85 a week, rising to £185.15 for those on the new state pension.

With inflation set to hit 6 or 7 per cent, this is a cut in real terms and pensioners are feeling the pinch.

Here’s how to make sure you are getting the maximum possible from the state system.

TARGET FIGURE

Pensioners had an average income of £19,240 in 2019/20, official figures show, of which £9,412 came from the state pension and other benefits.

The remaining £9,828 was generated by workplace and personal pensions, tax-free Isas and retirement savings. Canada Life technical director Andrew Tully said: “This shows the importance of saving for retirement under your own steam.”

That is not easy, though.to buy a guaranteed income of £9,828 a year at age 66 would require a pension pot of approximately £192,000, he said. That would buy you a level, single life annuity. If you wanted that income to rise by 3 per cent every year, you would need £294,000.

Yet Financial Conduct Authority figures show the average pension pot at retirement is just £61,897, leaving many well short.

TOPPING UP

Many people do not get the full basic state pension because they have not made sufficient qualifying National Insurance contributions while of working age.

You need 35 years of NI contributions to get the maximum amount, said Interactive Investor head of pensions and savings Becky O’connor: “If you have less than 10 years of contributions, you get nothing at all.”

Women who give up work to start a family, jobseekers, those with long-term illnesses and carers can all fall behind.

They can plug the shortfall by claiming NI credits, which top up your NI record if you cannot make them in the usual way. Each year of NI contributions gives you an extra £250 a year in state pension.

Over a typical 20-year retirement, this could be worth £5,000, according to government-funded guidance portal Moneyhelper.org.

Visit Gov.uk/national-insurancecredits to find out more.

BUY TO BOOST

Others have holes in their NI record because they were employed but had low earnings, or were self-employed but did not pay NI contributions because their profits were too small.

Those living or working outside the UK or who took career breaks for any other reason may also have gaps.

They can buy additional state pension by making Class 3 voluntary contributions, said Stephen Lowe, director at retirement adviser Just Group.these cost £15.40 a week for one year’s pension, or around £800 a year. “Each year you buy will boost your state pension by around £250 a year for life,” Lowe said.

That £800 could pay for itself in just three years, and the longer you live, the more you benefit.

You can only go back for the previous six years, so do not leave it too long to find out where you stand and start making up any shortfall.

Visit Government portal gov.uk/ check-national-insurance-record.

GET CREDITS

More than 2.1 million pensioners live in poverty, figures show, of whom roughly half are in severe poverty.

Pension credit is a means-tested benefit that tops up the incomes of the poorest retirees to £177.10 a week for single people and £270.30 for couples. It also acts as a gateway to other benefits such as council tax reduction, heating support and free TV licences for the over-75s.

More than a million fail to claim pension credit worth £1.6 billion in total, or around £1,600 a year each. That money could transform lives.

Later life campaigner Baroness Ros Altmann wants a Government campaign to boost uptake: “It should also consider offering pension credit to all over60s, especially those in poor health.”

Visit Gov.uk/pension-credit or call 0800 99 1234.

‘There are people who have made 45 years worth of contributions

who do not get a pension’

AGE ARGUMENTS

The state pension age will rise to 67 from 2026 to 2028, then potentially to 68 as life expectancy climbs.yet life expectancy has been falling and campaigners argue these increases should be postponed or scrapped.

Altmann is also calling on the Government to introduce a new “ill-health early pension”, allowing those with serious medical conditions to claim it from an earlier age.

She said the poorest only stay healthy to around age 50, while the wealthiest remain healthy to 70. “Those who started working early in life may have made 40 or 45 years worth of contributions and still aren’t getting a penny in pension,” she said.

The Government launched the latest review of the state pension age in December, with the report due by May 2023.Any changes will not affect those who have already retired, but may have a big impact on future generations.as the nation ages, the state pension will be more important than ever. It will also get more costly.