Unusual move to boost your pension by £665 a year: can you get extra money?
AN UNUSUAL move could increase your state pension by as much as £665 every year in retirement.
Planning your golden years means looking at your budget and the amount of money you have to work with.
But many people approaching retirement age don’t realize there are other options to increase your pot.
Pension experts from Just Group explain that one way is to actually postpone your AOW benefit for a year.
The team found that hundreds of 55-64 year olds, who will soon be making important retirement choices, don’t even know that deferral is an option.
Stephen Lowe, group communications director at Just Group said: “Deferral can be a good option for people who don’t need the income immediately – perhaps because they are still working or have other sources of cash – so it is disappointing that a quarter of those in coming close is disappointing. State pension age does not know about the option.”
Despite being a relatively unknown way to boost your savings, it can actually net you an additional $664.58 in payments per year.
That’s because when you turn 66, the current retirement age, you must claim the benefit. This does not just automatically end up in your bank account.
If you resist making a claim, it will increase by 1% for every nine weeks you delay.
Over a period of 52 weeks you will receive an extra 5.8%.
If you’re entitled to the full new state pension amount of £11,501 per year, which starts from April, you can get an extra £12.78 for every week you defer.
Recently The Sun spoke to a woman who increased her pension income by £1,014 a year by paying voluntary national insurance contributions (NICs) and delaying the withdrawal of her state pension.
Risks you should take into account if you postpone your state pension
Deferral can be a smart option if you don’t need the money right away, and it will increase the amount you get if you decide to stop working.
Please note, however, that the postponement may affect your right to a different amount advantages such as Pension Credit.
And only postpone if you can actually live without a pension or want to continue working.
It’s also important to know that you may be taxed on the deferred payments, so make sure you do the calculations first.
It is of course important to remember that if you are not entitled to the full AOW amount, you could receive less than €665 by deferring.
Under current rules you need 35 years of National Insurance (NI) credits to get a full new state pension.
Many people have gaps in their NI record due to time spent outside the labor market, for example raising children.
It’s important to get a state pension forecast, which will show you how much you’re on target and whether there are any gaps in your national insurance file.
If you do have gaps, it’s a good idea to check with the Department for Work and Pensions to see if you were eligible for benefits that come with National Insurance credit during that period, for example child benefit and universal credit.
And if this is the case, you may be able to make a retroactive claim.
But if you can’t get free NI credit, you can also pay to fill the gaps in your file.
You can normally buy voluntary NICs for the previous six tax years, but there is currently an opportunity for those retiring under the new State Pension Scheme (post 2016) to fill gaps dating back to 2006.
This plan will be ready in 2025, so there is still time to close the gaps.
It is important to note that before making any voluntary contributions, you must first make a pension forecast and speak to the The future government pension center.
The agency can tell you if it is worth paying for additional years of qualification, as this is not beneficial for everyone.
Top tips to boost your pension pot
Don’t know where to start? Here are some tips from financial services provider Aviva on how to get started.
- Understand where you start: Before you think about your plans for tomorrow, you need to understand where you are today. Look at your current pension savings and investigate when you are eligible for the state pension and how much support you will receive.
- Benefit from your company pension: All employers are legally obliged to provide a company pension. If you save, your employer usually also has to contribute.
- Take advantage of online planning tools: Financial service providers Aviva And Royal London have tools that give you an idea of what your retirement income will be, based on how much you save.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisors to help you plan for your future retirement.
How to apply for the AOW pension
You must apply for the AOW pension. It is not simply paid out automatically once you reach retirement age.
About two months before you reach retirement age, you will receive a letter from the Department for Work and Pensions (DWP) telling you what you are eligible for.
You can apply for your AOW from three months until your retirement age, even if you have not received the letter.
You can apply online at the gov.uk website for England, Scotland and Wales. If you have not received an invitation letter, you must first contact the DWP to request an invitation code.
You then need:
- the date of your most recent marriage, registered partnership or divorce
- the dates of the time you lived or worked abroad
- the details of your bank or building society
- the invitation code from the letter about obtaining your AOW
If you live in Northern Ireland you will need to register on the nidirect.gov.uk website.
If you submit your application within the first twelve months after you reach state pension age, you can request that the application be submitted retroactively from the moment your entitlement began.
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