The State Pension is a great benefit that most people qualify for in some way, and it can make an enormous different to income in retirement. Yet due to the numerous rule changes over the years, many people would agree it is exceedingly complicated.
My recommendation is to obtain a personal State Pension forecast to find out what you will be entitled to. You can do this here. As the State Pension age is being gradually increased from 65 to 67, the forecast will also confirm when you will be eligible to claim it.
The number of years required to reach the maximum State Pension has also changed over the years. Until 2010, men needed 44 years to receive the maximum, and women 39 years. This was equalised and brought down to 30 years, but with the introduction of the flat rate State Pension in 2016, 35 years of full rate National Insurance contributions are now required.
As a result of obtaining a State Pension forecast, one question I am often asked is
"I've got more than 35 qualifying years but it says I haven't reached the maximum State Pension; why?".
The answer to this question is hinted at above. Individuals require 35 years of full rate National Insurance contributions. Many individuals may have paid NI for well over 35 years, but if they had contracted out of the State Second Pension (S2P or SERPS as it used to be known), either through a personal or company scheme, this will mean they will have some years when they did not pay the full rate NI. Many final salary pension schemes were contracted out, so if you have a final salary pension, you may have been contracted out without necessarily being aware.
This could cause a situation, therefore, where you have built up more than 35 years but still have not reached the maximum.
It's not all bad news though. In the past, such individuals would have been limited to the Basic State Pension which was about £6,000 pa, and would not have received any top up to this for years where they were contracted out. Instead, they would receive benefits from their company scheme or personal pension that were contracted out.
Now though, it is possible for such individuals to qualify for more full rate years through National Insurance contributions since 6th April 2019. So it is possible to still reach the maximum State Pension, and still receive the extra benefits from the company or personal scheme that was contracted out.
Obtaining further qualifying years is easy. If you continue to earn more than the Lower Earnings Limit (£6,136 pa) for 2019-20, you will earn an additional qualifying year towards your State Pension for each year your earnings are at or above this level.
Alternatively, you can make voluntary Class 3 NI contributions, which cost about £750 pa. You can either pay this as a lump sum for the extra years you need, or you can pay regularly.
However, it is only years since 2016 which are generally worth buying for this purpose. If you have obtained your State Pension Forecast and would like us to check it for you, please get in touch.
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