The New State Pension
How much will you get and can you buy more benefit?
Written by Patryk Dyjecinski

IFA and Founder of Clara Wealth

For many retirees, the State Pension forms a significant part of their pension income. Anyone reaching State Pension age1after 6 April 2016 with full entitlement currently receives a guaranteed income of £185.15 per week (£9,627.80 pa). The “triple lock” guarantee2means this income increases each year by the higher of: 

  • National average earnings
  • The Consumer Prices Index (CPI)
  • 2.5% 

The state pension is adjusted every April using the previous September’s wage and inflation data. With July inflation reported a 9.1% year-on-year and expectations of even higher inflation later in the year, the New State Pension is very likely to be above £10,000/year from April 2023.

Eligibility

You’ll usually need at least 10 qualifying years on your National Insurance record to get any State Pension. To qualify for a full State Pension, an individual will need a complete NI record of 35 years. Entitlement is built up through:

  • Paying NI while working
  • Receiving NI credits (for example, when you are a stay-at-home parent)
  • Paying voluntary NI contributions

Obtaining Pension Forecast

Obtaining a State Pension forecast and a copy of your NI record is quick and available through the Government Gateway. The forecast will provide:

  • Current entitlement to State Pension assuming no further NI contributions are made or credited.
  • Entitlement at State Pension age assuming NI contributions are credited until you reach State Pension Age.
  • NI contribution record showing if there are any gaps in previous tax years that can be ‘filled in’ to enhance the State Pension entitlement. 

Making Voluntary Contributions

If, once a Pension Forecast has been obtained, there are gaps in your NI record, you may be able to pay voluntary contributions to fill them.

The cost to fill in gaps in an NI record are generally in the form of class 3 NI contributions at a cost of £15.85/week or £824.20 per annum. As each additional qualifying year equates to an extra £5.29 per week or £275.083per annum of State Pension benefit, it’s easy to see the value of making these contributions!

For anyone who without voluntary contributions would not reach the full state pension benefit, a payment of £824.20 secures an inflation-linked pension of £275.08 per year.

Window Of Opportunity

Usually, it’s only possible to pay for gaps for the previous six years. However, men born after 5 April 1951 and women born after 5 April 1953 have until 5 April 2023 to pay for any eligible gaps between the tax years April 2006 and April 2016. This effectively creates a window of 16 years. After 5 April 2023, this will revert to the usual six-year period. 

Summary

The State Pension provides a guaranteed, index-linked income that forms the bedrock of retirement income. If a shortfall is predicted, it’s important to consider this before the end of the tax year, as you will have the ability to fill in any gaps in the NI record going right back to April 2006. This window of opportunity reduces to the previous six years from the end of this tax year. 

To discuss your state pension, your retirement plans or anything else, please contact me at contact@clarawealth.co.uk or on 0207 097 4968.

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.


[1] The State Pension age is currently 66 and rises to 67 between 2026 and 2028. It will then rise again to 68 between 2044/46 (although a proposal has been made to bring these dates forward to between 2037 and 2039).

[2] The triple-lock guarantee was suspended for 2022/23 after the distortions of earnings statistics over the Coronavirus lock-downs.

[3] In 2022/23 terms