A LITTLE-KNOWN trick could boost your state pension by £614 every year in retirement.
Preparing for when you retire is vital the closer you get to pension age, there are often nifty ways you can add to your pot.
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Pension expert at Hargreaves Lansdown Helen Morrisey explained that one way is to actually defer your state pension payment for a year, adding up to £614.
That’s because when you hit 66, the current pension age, you have to claim the benefit – it won’t just land in your bank account automatically.
If you resist claiming, it will increase by 1% for every nine weeks you defer.
Over a 52-week period you’d get just under 5.8% extra.
If you were entitled to the full new state pension amount of £10,600 a year, you could get an extra £614 by deferring for those 52 weeks.
Helen, who is the head of retirement analysis at Hargreaves Lansdown, said: “When the then Prince Charles celebrated his 65th birthday he became a ‘pension-heir’ able to claim his state pension.
“Few of us are wealthy enough to be able to afford to donate our state pension to charity but if you are like the King and still working and don’t need the money straightaway, you could get more from this all-important benefit by deferring claiming it.”
If you don’t need the money straight away, by using this little-known trick it could be a handy way of boosting how much you get when you actually do decide to finish working.
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However, you should be careful that by deferring you don’t affect your entitlement to other benefits you could receive such as Pension Credit, Helen warned.
Of course it’s important to remember that if you’re not entitled to the full pension amount you could get less than £614 by deferring.
Also, only defer if you can actually afford to live without your pension or want to continue working.
The starting point to making the most of your pension, Helen explained, is ensure you can claim as much as possible.
Under current rules you need 35 years’ worth of National Insurance credits to get a full new state pension.
However, many people have gaps in their record due to time spent out of the workforce – to raise children for example.
Helen said: “It’s important to get a state pension forecast which will tell you how much you are on track to get and let you know if you have any gaps in your National Insurance record.
“If you do have gaps, then check with DWP to see if you qualified for a benefit during those periods which comes with a National Insurance credit – for example Child Benefit and Universal Credit.
“If this is the case, then you may be able to backdate a claim.”
If this isn’t possible then you can actually pay to fill in the gaps in your record too.
The current rate works out to be £17.45 per missing week which means it costs £907.40 to buy one year of contributions.
Partial years will be cheaper – and for each year you buy you get an extra 1/35ths state pension – which is just over £300.
“This means that as long as you live at least three years after state pension age you’ve got your money back,” Helen said.
You can usually buy voluntary NICs for the previous six tax years but there’s a current opportunity for those retiring under the new state pension system (post 2016) to fill gaps going back to 2006.
The scheme, which was originally meant to end in April, will now end on July 31.
But of course, there are risks – if you happened to die before the three years are up then you will have wasted the money, the savings experts explained.
It’s important to note that before making voluntary contributions, you need to get a pension forecast and speak to the Government’s Future Pension Centre.
The body will be able to tell you whether it’s worth you paying for extra qualifying years, as it may not be beneficial for everyone.
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