State Pension Boosting

It's possible to boost the amount of the Basic State Pension you'll get, in some cases adding many thousands of pounds over the years, by paying just a few hundred quid now. This is a full 2009-10 tax year Q&A guide to getting the most of the State Pension and Pension Credit, including the pension boosting calculator.

• Q. What is pension boosting?
• Q. How does the State Pension work?
• Q. What's Pension Credit?
• Q. Should I delay taking my pension?
• Q. How do I pay to boost my pension?
• The Pension Boosting Quick Calculator
• Related Articles / Discuss

Also read the Benefits Check-up article.

The Basic State Pension isn't a simple beast...

It's an old saying that there are only two people in the UK who understand the State Pension, but sadly one is dead and the other isn't sure he truly gets it. We've worked hard to make this guide easy to understand & accurate (even getting the govt department responsible to fact check). So please feedback to us, include anything that doesn't make sense, or where more info's needed.

What is pension boosting?

The Basic State Pension is a government-administered scheme, funded by National Insurance (NI) contributions, to give those who have reached the Government-defined retirement age a guaranteed weekly income, currently just over £95 a week. The most important thing to understand is, for those who qualify…

The Basic State Pension is NOT means tested. It doesn't matter what your former salary was or how much you've got in savings.

Instead, the amount you receive depends on a number of factors, most importantly the amount of National Insurance you've contributed over the years and the age you start collecting it. Therefore for some, it's possible to massively boost what you receive by making small additional top up contributions or delaying the start of your pension.

To make the decision, it's important to first understand how the state pension works. The questions below will take you through that, then it's time to work out if you can pension-boost.

Also note that the Pension Credit benefit is a top-up available to many on low incomes or with limited savings, yet many miss out. It is easy to do a quick Benefits Check to ensure you're getting what you're entitled to.

There's also a Second State Pension which only some people qualify for and works completely differently, that's beyond the scope of this guide, but read a quick briefing

How does the Basic State Pension work?

It is a set weekly income until death, you usually get once you reach the official retirement age. Yet don't assume absolutely everyone gets it. There are a number of exclusions, namely if you've not paid enough national insurance throughout your adult life.

When do I get the state pension?

You qualify at the Government's official retirement age, which depends on when you were born, and your gender, though you needn't start taking the pension at that point. The official retirement age is gradually being raised so while many women currently get it at 60 and men at 65, in a few years, this will rise to 68 for both.

To find your exact retirement age see the
Govt's State Pension Age Calculator

How do I claim it?

The Pension Service should automatically send you a claim form four months before you reach the official retirement age. Your pension is paid directly into your current account. If you don't receive the forms, call 0800 731 7898.

Who qualifies for the Basic State Pension?

To get the FULL state pension you'll need to have worked for most of your working life and paid National Insurance (NI) contributions or been on qualifying benefits.

The amount you're entitled to is calculated by the number of NI qualifying years you've accumulated. Again, the qualification criteria changes with the year you were born. The good news is soon you'll need FEWER qualifying years to get the full pension.

If you have a shortfall you will receive a letter from HM Revenue and Customs once a year to inform you of it.

What is a qualifying year?

To gain a qualifying year, you need to earn a set minimum during a tax year (April to April) and pay the required National Insurance. For 2009-10, this is £4,940 for employees or £5,075 for the self-employed. In past years, the amount was, of course, lower, but it has always been at a similar figure in relation to average salaries. So only those on very low wages could have missed out.

So if you were working full time, even on the minimum wage, or even just a few days a week throughout the year, it's likely you earned a qualifying year.

What about full time parents & those who can't work?

Here, you may be eligible for Home Responsibilities Protection (HRP) or National Insurance (NI) credits, which count as a qualifying year.

• Home Responsibilities Protection (HRP)

  You get this automatically if you are a full-time parent who claims Child Benefit for someone under 16, or a full-time carer who claims Income Support. However, foster carers and others may have to claim it (find out more)

  If you reach state pension age on or after 6 April 2010, Home Responsibilities Protection is being replaced with NI credits. Years of HRP built up before then will count as qualifying years of NI credits

• National Insurance (NI) Credits

  These are normally automatically awarded for the weeks you were claiming and receiving any of the following benefits: Carer's Allowance, Jobseeker's Allowance, Incapacity Benefit, Employment and Support Allowance.

How many qualifying years do I need?

This depends on gender and when you hit retirement age, as the amount needed will soon reduce.

	Qualifying years for Women. If you reach state pension age after 5 April 2010 you will need 30 qualifying years to get the FULL basic pension. If you reach it on that date or before you need 39 years.
	Qualifying years for Men. If you reach state pension age after 5 April 2010 you will need 30 qualifying years to get the FULL basic pension. If you reach it on that date or before you need 44 years.

Don't have enough qualifying years?

You may still be entitled to a PARTIAL state pension but it depends on when you hit retirement age and how many qualifying years you have.

• Retirement age hit BEFORE 6 April 2010.

  If you've less than 25% of the qualifying years then you're not entitled to a Basic State Pension. If you have 25% or more, you'll get an approximate pro-rata weekly income. In other words, if you've half the qualifying years you'll get roughly half the full state pension.

  However, if you don't qualify for the Basic State Pension and have no other income you're usually eligible for Pension Credit which ensures you receive a guaranteed minimum income. Plus, if you're over 80 and qualify for less than £57.05 a week (in 2009-10), you'll still get a minimum £57.05.

• Retirement age hit on or AFTER 6 April 2010.

  If you have at least one qualifying year, you'll get a thirtieth of the full amount for each qualifying year. Therefore, if you've eighteen qualifying years you'll get 18/30th (three fifths) of the FULL State pension.

Yet if you haven't got other income or savings, this doesn't mean you won't get any more from the state. The Pension Credit benefit guarantees a minimum income for those with little earnings.

How much will I get?

There's a complicated maze surrounding the amount you get, but a brief summary (until 5 April 2010) is as follows:

Full Individual Basic State Pension: £95.25 per week
Extra for those aged 80 and over: £0.25 per week

If you're a woman who hasn't qualified for the Basic State Pension, but your husband is already claiming, there's a special Basic Couples Pension you could get once both of you reach retirement age. If both partners qualify for the basic pension in their own right and their total individual pensions are more than what they'd get as a couple, they get that larger figure. From April 2010 the rules on couples pensions are changing.

Couples Basic State Pension: £152.30 per week

These figures are only rough guides as many other variables come into play. You can try DirectGov's Guide for more information but it is short on some detail. The best way to find out is to phone on 0800 731 7898 (option 1).

There's another crucial fact to remember...

The Basic State Pension is taxable, but alone, is under the threshold before being taxed. Yet for those with other income, it counts as taxable earnings.

If you defer your pension (more information in a moment), any lump sum income you take is taxed differently.

Will pension income affect my benefit entitlement?

Yes. A pension counts as any other income so will affect your entitlement to Pension Credit, Housing Benefit or Council Tax Benefit. See the Benefits Check-up guide.

Does the Basic State Pension award increase every year?

Yes. It rises every April. The amount of the increase is based on the previous September's inflation rate (based on the Retail Prices Index, which includes housing costs) or 2.5%, whichever is higher.

What happens when I die?

Your Basic State Pension cannot be passed to someone else when you die. Though if you delay claiming your State Pension, your widow, widower or surviving civil partner may be entitled to some of the cash.

If you have contributed towards the Second State Pension, your spouse or civil partner can inherit some of this, though it depends on when you were born. If you've no spouse or civil partner, any State Pension you put off claiming becomes part of your estate. Find full details on the DirectGov website.

Your surviving partner may be entitled to a one-off bereavement payment or bereavement benefits for a year. Get details on this from Jobcentre Plus.

What's Pension Credit?

Pension credit is an extra payment that guarantees everyone a minimum income yet many don't realise they're missing out on cash they're entitled to.

Almost two million on low incomes eligible for Pension Credit don't claim. To check if you're eligible call 0800 99 1234.

While pension credit is for those with low incomes you may be eligible even if you have tens of thousands of pounds in savings.

Say you earn no salary or private pension and just get the full basic state pension, you'd be entitled to the benefit if you have up to £27,000 in savings.

If you get half the basic state pension and no other income, you'd be eligible if you had up to £51,000 in savings.

The benefit comes in two parts:

The Minimum Income Guarantee For single pensioners with weekly income (including pension) below £130, the pension credit will top you up to £130 If you have a partner and your joint weekly income is below £198.45, it'll top you up to £198.45 If you pay mortgage interest or have other housing costs, or if you've caring responsibilities, or are are severely disabled, you may be entitled to even more Pension Credit.

The Savings Credit element (for those 65 and over) It is a reward for those with a modest income who have saved for retirement. After all, if saving means you end up with little more than those who don't save, it'd discourage people from providing for themselves. How successful it's been at ending that disparity is still open to question. For a single pensioner with weekly income (including pension) between £96 and £181 a week you may be entitled to up to £20.40 a week extra. For a couple with joint weekly income between £153.40 and £266 a week you may be entitled to up to £27.03 a week extra.

To check your full pension credit entitlement, use the
Govt Calculator

What counts as weekly income?

Any income from work is, of course, treated normally, so if you earn £10,000 a year, that's what goes down on your file.

When it comes to savings and investments the situation is a bit more complex. This means any money saved or invested in your name, or investment properties (ie, excluding the home you live in.)

• The first £10,000 doesn't count. You're allowed to have that sum saved without it impacting your pension credit at all. This is a big boon as the majority claiming pension credit have little more than this saved.

• Above £10,000. Here, it's assumed you earn £1 a week per £500 of saving, which works out at 10.4% interest. This is completely unachievable in any savings account now, and virtually unachievable at any point in recent memory. If it were an investment, it would need to be doing seriously well.

  It can only be presumed an assumption of a gradual use of capital has been factored into this calculation, plus the initial ‘free’ £10,000.

What if my investment drops in value?

The amount you initially declare you have stays on your file and is calculated at that rate going forward unless you let the Pension Service know. Therefore, if you spend your savings or the value of your investment drops, it's important to notify the Pension Service and have the amount you're entitled to recalculated as soon as possible. You should then receive the increased benefit as soon as your paperwork is processed. You can do this by calling 0800 99 1234.

Should I delay taking my pension?

You can put off claiming your Basic State Pension. This can be especially useful for those still working as it can mean a larger annual pension payout later. You can also defer receiving payments once you've already started claiming, though you can only do this once.

If you choose not to take your pension, the benefit comes in one of two ways.

• Choose a bigger pension later.

  For every five weeks you delay claiming, your future weekly allowance is increased by 1%. So delay for a year and you get the full pension plus 10.4% extra. Though the amount isn't compounded so you don't get the increase on the increase.

• Get it as a lump sum.

  As long as you've deferred for at least a year, and began to defer after 5 April 2005, you can choose a lump sum. This is made up of the deferred payment plus interest at 2% above base rate (this time it is compounded). After collecting the lump sum, you then get the standard pension. Any lump sum payment cannot push you into a higher tax bracket so will be taxed at the same rate as your other income.

Is it worth deferring to increase the payout?

The answer to this, unsurprisingly, isn't simple. It is SOMETIMES worth deferring as you may get a larger overall payout. In general, the longer you live the more beneficial it becomes, so it's a decision you'll need to make based upon your circumstances and it is a bit of a gamble.

How long will I live?

Twelve years, six months, and 7 days… only joking. There's no crystal ball that can tell you this. However, according to the Financial Services Authority, a healthy 65-year-old man is expected to live, on average, for another 18 years and a 60-year-old woman is expected to live for another 21 years.

So the odds suggest many are better off deferring a few years, though, of course, some always fall short of averages. Yet if you took your pension early, without spending it, it'd be earning some interest in the bank. That shows why it's important to carefully consider your options.

How do I defer?

Contact the Pension Service on 0800 731 7898 (option 1).

How do I pay to boost my pension?

If you haven't got the full pension because you haven't paid enough National Insurance, you can sometimes pay to replace any missing NI qualifying years, or part years. This could mean a massive increase. For some people, paying a one-off £626 now can mean you earn more than £1,000 a year extra. You'd only need to live 26 weeks after starting to claim to be in profit.

Most people can buy extra years both before and after retirement age. This is particularly helpful for women who were bringing up children, who may not have accumulated enough NI years. In addition, anyone who has worked overseas may not have built up sufficient NI contributions.

Specifically, you are buying Class 3 National Insurance contributions (NICs) from HM Revenue & Customs allocated to a specific year. For example, if you didn't work in 2003/04 you need to buy it specifically for that year. However, you had to be under state pension age during the NI year(s) you buy.

If you're not sure whether you're missing any years, don't worry. HM Revenue & Customs usually sends out notices to people with NI gaps once a year. If you're still unsure call the Revenue on 0845 915 5996.

How many years can I buy and what's the cost?

There are three categories of years you can buy, but they don't apply to everyone.

• The previous six tax years, including the year you're in

  This applies to most people. However, the price you pay can rise if you delay. If you pay within two years of the tax year you're buying, you pay that year's price. Otherwise, you pay the rate for the year in which you are buying, which in 2009-10 is £626 a year.

  For example, if you buy the full 2007-08 year now, you pay the 2007-08 price, approximately £405. However, as the 2007-08 tax year ended on 5 April 2008, if you buy two years and one day later, on 6 April 2010, the price rockets to the 2010-11 price. That's yet to be determined but will be at least £642.

• In addition, 1996-97 to 2001-02 at that year's price, if you retired before 24 October 2004

  But you must do so by 5 April 2010. See the prices for each year.

• An additional six years between 1975-76 to 2003-04, if you meet certain conditions

Some people can buy an additional six years dating back to the 1975, on top of the other limits. This additional allowance only applies to those who have reached, or will reach, state pension age between 6 April 2008 and 5 April 2015. They must already have at least 20 qualifying years, and those who reach the official retirement age before 6 April 2010 must generally have at least one year from paid employment.

You'll pay the rate for the year you're in for these contributions, currently £626 a year (or £12.05 a week). You have six years from the date on which you reach pension age within which to pay.

Is it worth it?

There are many variables to consider here and a definitive answer is virtually impossible. The most important thing before we start is…

If you've no other income, the pension credit will usually top you up beyond the full state pension, so check before buying.

In effect, this means buying extra years is primarily a way for those who have income or savings to increase the Basic State Pension pay out – rather than a route for those on low incomes to get a living amount.

It's not just those who receive the pension credit who should carefully check out whether they can actually gain from buying more stamps. This applies to those who…

• …Can't buy enough to hit the minimum. If you have very few qualifying years and are retiring before April 2010, it may be the case that you can't buy enough credits to hit the minimum.

• …Pay reduced NI. Married women sometimes pay less (known as the "small stamp" or "married women's stamp"). They cannot replace any missing years where they paid reduced NI for the whole year.

• ...Will be able to claim via their partner's contributions. If buying extra years won't beat the income you'd receive by claiming the couple's pension.

If you try to buy further years that would take you over the maximum required, you'll normally be prevented from doing so by the Government.

The Pension Boosting Quick Calculator

This calculator is designed to give you a ROUGH idea of the worth of topping up extra years if you haven't got your full state pension entitlement. Yet see it far more as a rule of thumb guide than as an accurate answer as we've made a number of assumptions to make it simple to use.

The main assumptions are that you are an individual (this DOESN'T work for those claiming a couple's pension), and we use the 2009/10 State Pension amount (£95.25/week), but do not increase it for future years.

Gender:

 

Male Female

When did you, or will you, retire?

- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 - Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1980 1981 1982 1983 1984 1985 1986 1987 1988 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

How many NI years have you got?

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 - 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44

You already have enough years to get the FULL Basic State Pension. You do not need to buy any more.

Which NI years do you want to buy?

(To select multiple years: Hold Ctrl Key and click mouse).

You already have enough years to get the FULL Basic State Pension. You do not need to buy any more.

Based on a typical scenario if you've...

years of NI contributions and buy more.

You'd need to live for at least  to make your money back

Warning! This is a rough calculation, and is set for current conditions. Before acting upon this, always talk to a professional adviser, or the Pensions Service to get a full appraisal for you. If you buy NI contributions after 6 April 2009, the cost changes vastly, and the answer could be much different to the one above

When did you, or will you, retire?

If unsure, use the Govt's State Pension Age Calculator

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If unsure, contact HM Revenue on 0845 915 5996. However, it should send you an annual notice if you have a shortfall. Otherwise, you should have as many NI years as you have been working for or been receiving eligible benefits since the age of 16.

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Which NI years do you want to buy?

Those retiring after 5 April 2010 need 30 NI years for the full Basic State Pension. If you retire before that, men need 44 and women 39. If you expect a shortfall you can play about with the calculator to find how many extra years are best for you. Remember, this is a rough calculation, Before acting, always talk to a professional adviser, or the Pensions Service.

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If, on the back of this calculation, it looks likely that you want to buy more years, then use DirectGov's Pension Planning section before making any decision and go through a detailed plan. You can requestion an online State Pension forecast or it can be called on 0800 731 7898 (option 1).