Millions of people could be missing out on getting enough retirement income – and they don’t even realise it.
The amount of State Pension you will get is based on National Insurance contributions through a complex set of rules.
Each year, a person needs to be earning a certain amount in order for NI deductions to count towards their State Pension. So exactly how does it work?
In some years, you may be putting nothing towards your State Pension without being aware of it.
More than four million people missed out on qualifying for State Pension contributions in the tax year 2018-2019, according to Government figures reported by The Sun.
For a qualifying year, you usually need to earn a minimum amount and pay the required National Insurance contributions.
According to MoneySavingExpert, for 2021/22 these minimums are:
- For employees: £120/week, £520/month, £6,240/year
- For the self-employed: £125/week, £542/month, £6,515/year
In past years, the amount was lower because it relates to average salaries.
“If you work full-time, even on the minimum wage or just a few days a week throughout the year, you are likely to earn a qualifying year,” MSE said.
However, you can miss out on qualifying for pension contributions for a number of reasons. This could be because you were:
- employed but had low earnings
- unemployed and were not claiming benefits
- self-employed but did not pay contributions because of small profits
- living abroad
Students who are not earning an income will also miss out on a few years of making NI contributions but usually have plenty of time to make up for that in their working lives after college or university.
Anyone going back into education in later life needs to be aware their NI contributions will stop if they are studying at college or university full-time and don’t have a job or are not claiming benefits.
Basic State Pension
There are two types of State Pension.
The old system, now known as basic State Pension, is paid to those who were born before:
- April 6, 1951 if you’re a man
- April 6, 1953 if you’re a woman
For the basic State Pension, you need a total of 30 qualifying years of National Insurance contributions or credits to get the full amount. This means you were either:
- working and paying National Insurance
- getting National Insurance Credits, for example for unemployment, sickness or as a parent or carer
- paying voluntary National Insurance contributions
If you have fewer than 30 qualifying years, your basic State Pension will be less than the maximum of £137.60 per week.
New State Pension
This is the pension paid to those who are born on or after the dates for the basic State Pension mentioned above. It came into effect on April 6, 2016.
You will need a minimum of 10 years of National Insurance contributions to get any new State Pension at all.
For 2021/2022 the amount paid out is £179.60 a week.
You’ll need 35 qualifying years to get the new full State Pension if you do not have a National Insurance record before April 6, 2016.
If you have between 10 and 34 years of NI contributions, you receive a graduated lower amount.
If you started work before 2016 but reach pension age after then, transitional arrangements apply to take your pre-2016 NI record into account.
It’s worth mentioning that you may get less than the full new State Pension if you were in a contracted out personal or workplace pension scheme before April 6, 2016.
That’s because those who were contracted out paid a lower rate of National Insurance. Since April 6, 2016, contracting out has stopped and NI payments returned to the standard level.
The Government says you get a qualifying year if:
- you’re employed and earning over £184 a week from one employer
- you’re self-employed and paying National Insurance contributions
You may not pay National Insurance contributions if you’re earning less than £184 a week. But you may still get a qualifying year if you earn between £120 and £184 a week from one employer.
You may get National Insurance credits if you cannot work because of illness or disability, or if you’re a carer or unemployed.
For example, you can get National Insurance credits if you:
- claim Child Benefit for a child under 12 (or under 16 before 2010)
- get Jobseeker’s Allowance or Employment and Support Allowance
- get Carer’s Allowance
You might be able to pay voluntary National Insurance contributions if you’re not in one of these groups but want to increase your State Pension amount.
How to check what pension you will get
It’s best to get a State Pension forecast which will tell you how much you are in line to receive. Check your State Pension forecast here.
You can then apply for a National Insurance statement from HM Revenue and Customs (HMRC) to see if your record has gaps.
If you have gaps in your National Insurance record that would prevent you from getting the full new State Pension, you may be able to: get National Insurance credits or make voluntary National Insurance contributions in order to increase the amount.
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