The state pension is set to increase by 4.8% in April 2024, raising weekly payments to £241.30 for those qualifying for the full new state pension. Meanwhile, individuals who reached retirement age before April 2016 will see their annual payments rise to £9,614.80. However, many may unknowingly make mistakes that can significantly reduce their pension entitlements, impacting their financial security in retirement.
Common Mistakes That Can Affect Your Pension
Ensuring that you receive the correct amount from the state pension requires attention to your National Insurance record. This record reflects the years you have worked or received credits. To qualify for the maximum payout under the new system, you generally need 35 qualifying years on your record, with at least 10 years needed to receive any payment at all. Here are five common mistakes to avoid that could affect your future financial well-being.
One prevalent oversight is not claiming Child Benefit. This benefit is available to anyone responsible for a child under 16, or under 20 if they are in approved education or training. While the cash payments can help with childcare costs, the benefit also provides crucial protection for your future state pension through National Insurance credits. When a parent takes time off work or reduces hours to care for a child, they may stop paying National Insurance, leading to gaps in their record.
By claiming Child Benefit, parents can receive credits for the time they are not working, ensuring that their National Insurance record remains intact. It is important to note that high earners, specifically those with an individual income exceeding £60,000, may face a High Income Child Benefit Charge. However, they can still benefit from the National Insurance credits by filling out the claim form while opting out of the cash payments.
Maximizing Your Entitlements
Another significant issue arises from not claiming other benefits you may be entitled to. For individuals unable to work due to health problems or those out of work, benefits such as Jobseeker’s Allowance and Employment and Support Allowance provide valuable National Insurance credits. These credits not only contribute toward the state pension but may also aid in qualifying for other benefits in the future.
If you receive Carer’s Allowance or the Carer Support Payment in Scotland, you will automatically receive credits that protect your pension record while caring for others. Furthermore, benefits like Universal Credit and Income Support also come with credits specifically for pension entitlement.
Many people are unaware that they must actively apply for certain credits, particularly if they have gaps in employment. For example, if someone is unemployed and does not claim Jobseeker’s Allowance, they must contact their local Jobcentre to request Class 1 credits manually. Additionally, those on statutory sick pay or maternity leave may also need to ensure their records are updated.
Another hidden category involves individuals who perform civic duties or have been living abroad for service reasons. This includes those on jury duty or military spouses accompanying their partners overseas. To claim these credits, individuals often need to write to HM Revenue and Customs, providing necessary details to update their records.
Addressing Gaps and Errors
If you discover gaps in your National Insurance record after claiming all available credits, you have the option to make voluntary payments to fill these gaps. This can be a valuable long-term investment, as paying to correct missing years can significantly increase your state pension income. For the 2024/25 tax year, the cost to buy back a week is £17.45, making a full year approximately £907.40. Filling older gaps may be cheaper due to lower rates in previous years.
It is crucial to verify whether filling these gaps will increase your pension. You can check your state pension forecast online at gov.uk/check-state-pension or contact the Future Pension Centre for advice.
Lastly, administrative errors by the government have resulted in many individuals receiving lower state pensions than they are entitled to. Recent data from the Department for Work and Pensions indicates that successful claimants have received significant back payments, with some individuals receiving between £5,000 and £12,000 due to these errors.
For example, the “Home Responsibilities Protection” error affected many parents who took time off work to care for children or ill relatives between 1978 and 2010. The government has committed to resolving these cases by March 2027. If you suspect you may be affected, you can visit the official government website for more information.
Being aware of these common pitfalls can help ensure you receive the full benefits of your state pension. Taking proactive steps to claim benefits and monitor your National Insurance record could make a significant difference in your financial security during retirement.
