The state pension often hinges on the National Insurance contributions a person makes in their working lifetime. If someone has a shortfall, it could mean they are not able to secure the full state pension entitlement once they reach state pension age.
In order to secure the full new state pension, Britons are likely to need 35 qualifying years on their National Insurance record.
A minimum of 10 qualifying years is typically needed to get any state pension at all.
Some people could therefore be shocked to find although they paid National Insurance in a given year, they did not earn a qualifying year.
There are set criteria to take into account when it comes to what is considered a qualifying year.
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For example, currently, employees need to earn £123 per week, or £6,396 per year to secure a qualifying year.
For the self-employed, this is £129 per week, £560 a month or £6,725 a year.
As a result, some people could be working part-time, for instance, and think they are building up a qualifying year, but could be missing out.
Those who have a fluctuating income could also risk falling short in some tax years they have worked.
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Others may not be earning enough to pay NI, for example, if they are claiming benefits because they are long-term sick, or unemployed. These individuals may be able to get NI credits to fill gaps in their record.
Recently, one woman contacted Martin Lewis on his BBC Sounds podcast, describing her shock at a state pension shortfall.
The woman, named Susan, and her husband worked as teachers and took early retirement. Although they believed they had been “savvy” about their pensions, they decided to check their National Insurance contributions.
But Susan described being “staggered” when the pair discovered they had been partially opted out of SERPS, a scheme to pay in to get an extra payment on top of the basic state pension. As a result, she and her husband had a state pension shortfall.
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The state pension forecast service is available via the Government website.
Alternatively, people can fill in the BR19 application form and send this by post, or call the Future Pension Centre to get a forecast posted out to them.
The forecast tool provides Britons with the following information:
- How much state pension they could get
- When a person can get the state pension
- How a person could increase their state pension.
People might be able to increase the amount they get if they delay their pension – but this is not suitable for everyone.
Similarly, individuals may be able to pay voluntary contributions to fill in gaps in their National Insurance record.
However, paying voluntary contributions will not always boost a state pension so it is vital one speaks to the Future Pension Centre before doing so.
If someone wants advice about increasing their workplace or private pension, they could speak to the Government-backed PensionWise service or an independent financial adviser.
The Martin Lewis Podcast is available on Wednesdays on BBC Sounds.
