State Pension: Expert outlines criteria to qualify
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Recently, the DWP unveiled new guidance which could help those looking towards their retirement get more money. Those who reached the retirement age of 66 between April 6, 2010 and April 5, 2015, could get a payment boost by paying up to six additional years of voluntary Class Three National Insurance contributions for years going back to 1975. However, they either have to be not claiming or expecting to claim the full basic state pension and have 20 qualifying years of contributions under their belt.
The amount someone gets through their state pension is dependent on their previous National Insurance contributions.
As it stands, the weekly cost of a contribution is £15.85 in 2022 to 2023, or £824.20 a year for each complete year that is purchased.
However, it should be noted that the cost is subject to change each year and could cost people more.
People do not need to pay for a whole year if they have already paid some contributions or have credits from a previous tax year that they want to pay for.
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Individuals who are interested in boosting their state pension this way have six years from the date they reach 66 to pay voluntary contributions under this opportunity.
Every extra year a person pays for will boost their basic state pension by 1/30th of the full basic state pension.
Currently, the full basic State Pension is £141.85 a week as of April 11, 2022 and a 1/30th increase is around £4.73 a week.
On the Government website, the DWP outlined the various reasons people may want to make voluntary contributions to improve their state pension pot.
The Department stated: “You may want to pay voluntary contributions because you’re close to state pension age and do not have enough qualifying years to get the full state pension.”
Other examples include if future retirees know they will not be able to get the qualifying years which they require to get the full amount during their working life.
Also, people may opt to make voluntary contributions if they are self-employed, file Self Assessment tax returns and do not have to pay Class Two contributions because you have low profits.
Furthermore, expats who live outside the UK may decide to do this if they want to qualify for some benefits back home, such as the state pension.
According to research carried out by Quilter, the amount of people making Class 3 voluntary National Insurance contributions has gone up by 85 percent since 2016.
Jon Greer, the head of retirement policy at Quilter, explained: “If someone does have a gap, it is worthwhile considering whether to make additional contributions as they can be worth far more than what you pay particularly for those that live longer.
“With the average life expectancy stretching into the 80s now people need as much retirement provision as they can get and ensuring that they understand how much state pension they may receive is vital.
“Before considering making voluntary contributions it is sensible for people to check their National Insurance record and that can be done online.”
However, Mr Greer warned that using this method does not always guarantee that your state pension payments will rise.
He added: “It’s important to be aware that voluntary contributions don’t always increase yoursState pension and it’s advisable to contact the Future Pension Centre to find out whether it could be beneficial.
“Anyone worried about their retirement provision should seek professional financial advice. An adviser will be able to look at your complete financial situation and create a plan to suit your unique circumstances.”
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