Ross McConnell - Kinross Based Chartered Accountant

Full State Pension Entitlement

by ROSS MCCONNELL on APRIL 29, 2019

For everyone reaching State Pension Age (SPA) your current maximum entitlement is just £164.35 per week. The amount may even  be lower, depending on your National Insurance (NI) record, so it's always a good idea to check.

According to the Department for Work and Pensions, by 2020 just 85% of people reaching pension age will have at least 35 years of qualifying NICs, so don't leave it and then discover you're one of those affected. This is particularly true if your employment history includes periods when you were self employment or not employed.

If you are off sick and claiming employment support allowance, you will get a credit provided you satisfy the rules, which include being unfit for work and attending medical assessments.

You usually need 10 qualifying years as a minimum to get any new State Pension; and to qualify for the full amount you’ll need NI contributions for at least 35 years.

Does that surprise you?

It means, for example, with say 30 qualifying years you will receive just over £133 a week - or 30/35ths of the full sum.

Here are some other circumstances where it’s particularly beneficial to check how much you’ve paid in contributions: 

1. People with children born before 1998 will have received child benefit. This was paid with a credit towards their State Pension, under a policy known as Home Responsibilities Protection (HRP). This protection lasted until your child was 16 and if your children are now older that may be what you expected to happen for all your children, even their younger siblings. But in 2010, HRP was replaced by National Insurance credit and it applied only whilst the child was aged under 12. That's a four year potential gap... So stay at home carers between 2011 and 2016 could find they have an unexpected gap in their National Insurance record.

2. When the High Income Child Benefit Charge was brought in on 7 January 2013, somepeople who were not going to be eligible to receive Child Benefit any more decided not to claim it. That's commendable, but their decision could also have an unexpected consequence; it might mean that they did not credit their National Insurance in the tax years after 2013. That would mean they have lost their entitlement to State Pension in the relevant year(s).

3. If you've run your own business as a limited company then you may be aware that a tax efficient way to extract profit involves drawing a salary just below the National Insurance threshold, with the remainder of income taken as dividends. This means no National Insurance is paid, but HMRC still give a credit towards state pension, provided they process the payroll submission correctly. Often, however, this is not the case: and it is a good idea to check and make sure your payments have been credited. 

How to check for gaps in your national insurance

Checking your National Insurance history is fairly easy Click Here. 

To check how much state pension you could get at retirement Click Here. Here you can see what you’ve paid, up to the start of the current tax year.

If you discover you have any gaps in your national insurance then you can make voluntary contributions - for any or all of the past 6 years, but no more. So don't delay. 

But it's not always a straightforward decision, like so much in tax. You may not be able to afford to pay the top-up payment at the present time. It also comes out of income that has already been taxed, but you will possibly be taxed at a later date on the extra pension income that you receive. In some circumstances, the extra pension combined with other sources of income that you might have could push you into a higher rate tax band.

The Department for Work and Pensions highlights that any benefit from filling in gaps in NI contributions also depends on whether or not you were contracted out under the previous state second pension – also known as the additional state pension. This was abolished in April 2016. You may have built up additional state pension entitlement in this way, which will potentially mean you are already eligible for more than the full flat rate of £164.35 per week.

If not, then you can currently pay a lump sum in additional NI contributions of around £733, and in return you'll get a boost of around £230 a year to your state pension for as long as you live: so if you live in retirement for four years or more then you make a profit.

A pension forecast will tell you whether it’s all worthwhile, and that's a service we can provide.

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