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Whenever we talk about the state pension, we usually think in terms of the full amount that people can receive. However, it’s fair to say that not everyone receives this. In fact, many don’t and in some cases, people receive far less, and this can have a big impact on our retirement planning.
Recent research from Royal London shows that, of the 3.4 million people currently in receipt of the new state pension, only around half of them get the full amount of £221.20 per week.
Around 150,000 people receive less than £100 per week, and around 17,000 get less than £20 per week.
Although many of these pensioners will also have income from other sources it’s an important reminder not to assume you will get the full state pension or you could end up with a nasty surprise in store.
Your state pension entitlement is based on your national insurance record and generally you need 10 years’ worth to get any state pension and 35 years’ worth to get the full amount.
Read more: What is pension credit and are you eligible to claim?
However, many people have gaps in their record — for instance they may have lived outside the UK or have not worked for a period of time — and this will impact how much state pension they receive.
The important thing to do first and foremost is get a state pension forecast. This will highlight any gaps and you can put a plan in place to fill them. If you find gaps that shouldn’t be there then you can contact the Future Pension Centre.
You may also find that gaps in your national insurance record correspond with times when you would have qualified for a benefit that comes with an automatic national insurance credit. Examples include child benefit, universal credit and jobseeker’s allowance.
If this is the case, then you may be able to backdate a claim and get these credits added so you can boost your pension.
The other option is to buy national insurance credits to plug the gap. You can usually buy credits going back to the previous six tax years but, if you are a man born after 5 April 1951 or a woman born after 5 April 1953, then until April 2025 you can plug gaps going back to 2006.
Read more: Wage growth likely to trigger next rise in triple lock state pension
In return, you will get an extra 1/35th of your pension which works out at around £328 per year. This can be great value for money as you will have made your money back within three years of reaching state pension age.
However, it is really important not to just hand over the money without checking with the Future Pension Centre that you really will benefit.
If you were contracted out for instance, you may find that any top ups you make don’t actually improve your state pension. Contracting out is a feature of the old system where you were allowed to contract out of the state second pension in exchange for you (and your employer) paying less national insurance. However, many people got a top up to their workplace pension so haven’t missed out.
Contracting out has been abolished for several years but it will still be a factor for many people so it’s important to check if you are affected.
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