“Regardless of whether you’re under the old or new state pension system there are ways you can boost the amount of state pension you’ll receive. However, they need to be considered carefully.”

The new ‘flat-rate’ state pension was ushered in on 6 April 2016, affecting on the people reaching state pension age on or after 6 April 2016. This means millions of older people aren’t affected by it and have simply carried on receiving their state pension under the old system. While the Government’s aim has been to make the new system fairer for all and easier to understand, it can still be a minefield – and some people have lost out from the overhaul.

The official Retirement Age
You receive your state pension when you reach the Government’s official retirement age. What that is depends on when you were born. To reduce costs, the official retirement age is gradually being raised. It is increasing to 66 for men and women by April 2020, then to 67 by 2029, with a further rise to 68 expected between 2037 and 2039.

Buy ‘extra’ pension years
If you’ve got spare savings and can afford to be without the cash in the short term, it’s possible to replace some missing NI qualifying years. This could lead to a big increase in your basic state pension pay-out over your retirement. In a nutshell, you pay a one-off lump sum to buy a higher state pension sum. Assuming you live long enough, the extra cash you earn from a bigger weekly state pension could be worth £1,000s over a lifetime.

But before you boost your state pension, double-check it’s worthwhile because – as always with pensions – there are some tricky rules.  The key that defines whether it’s worth bothering is how many NI years you already have (remember that under the new state pension you need 35 qualifying years for a full rate pay-out). You can check online whether you have any gaps in your NI record by getting a state pension statement or calling the Government’s Future Pension Centre on 0845 3000 168 and they’ll send you a statement.

If you’re eligible, and you could benefit by boosting, buying extra years involves paying what are called ‘voluntary class 3 NI contributions’.  Those retiring after 6 April 2016 can buy up to 10 years’ contributions. The rate is £15 per missing week of NI contributions – £780 for a full year.

Is it worth it?
Buying a full extra year for £780 will boost your pension by £4.80 a week, equivalent to about £250 a year. So, if you buy one extra year, you’ll earn back what you paid in just over three years, which is an investment return very hard to find elsewhere!

By Philip Harper  |  July 2020

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