Report On How To Improve Your Pension
A recent report commissioned by Royal London estimates that millions of workers who retire before their State Pension Age could significantly boost their state pension.
If a worker misses out on a number of years of National Insurance contributions, for example, early retirement, career break, or working abroad, they can make voluntary payments for the missed years. Royal London estimates this can give a return of around 30%.
Employees of schemes contracted out might also be able to catch up on the missed years.
The new Flat-Rate State Pension was introduced earlier this year. For people retiring after 6 April 2016, the full flat-rate pension is £155.65 per week. This is based on 35 years of full flat-rate National Insurance contributions. However, people who paid reduced contributions will not receive the new rate at the start of the scheme.
Former Lib Dem MP Steve Webb is now policy director at pensions firm Royal London. Mr Webb said that voluntary or Class 3 contributions were attractive because the government heavily subsidises the rate paid on them.
He confirmed that one year of Class 3 National Insurance Contributions can be purchased for £733. This will potentially boost someone’s state pension entitlement by £230 per year for the rest of their lives.
Assuming someone lives for twenty years in retirement, an additional £4600 of extra State Pension would be generated. According to Webb, someone who filled five ‘missing’ years in their national insurance contributions could receive an extra £23,000 in pension by paying £4,000.
Royal London recently issued a publication called Good with Your Money. It provides valuable information about the state pension.
Webb said: Large numbers of workers could gain a substantial boost to their retirement planning for the payment of a relatively modest lump sum. However, the rules around topping up state pensions are complex, so we hope our new guide will help people navigate the system.
‘It is rare for the Government to offer something on such generous financial terms, and we want to ensure everyone knows how to take advantage of this opportunity’.
Many public sector workers are entitled to take their workplace pension at 60 but will not get a state pension until they are 65 or 66.
No national insurance contributions are paid between their retirement date and State Pension Age. Buying additional years using class 3 contributions can be a very effective way of boosting your State Pension.
Royal London estimates that around 210,000 NHS workers, 150,000 teachers, and 130,000 civil service workers could benefit from voluntary contributions payments.
More on the State Pension
If you are interested in finding out more about your State Pension entitlement, the best thing to do is obtain a pensions forecast. This is very simple. All you need to do is call the Future Pensions Centre on 0345 3000 168. You will need your personal details, including your National Insurance number, to hand.
