As you approach retirement, you’ll have a lot of things to think about. One of the most exciting might be how you plan to spend it, whether that’s mastering your hobbies or seeing the world.
Of course, if you want to be able to enjoy a comfortable retirement, you’ll need to have enough wealth to support yourself. While you probably have substantial private pensions, the State Pension can also provide a useful bedrock of retirement income.
To receive the full amount you need 35 qualifying years of National Insurance contributions (NICs). If you have less than 35 years, you can fill in the gaps with credits, but the rules around this are tightening as of 6 April 2023.
With this in mind, find out why the State Pension is so important and why you should act quickly if you have any gaps in your contribution history.
Your State Pension can form an important bedrock of wealth in retirement
Before anything else, it’s important to understand how much you can expect to receive from your State Pension when you reach the age of 66, or 67 from 2028. Please also bear in mind that the amount you could receive rises each year, so these figures only apply to the 2022/23 tax year.
If you’re yet to reach the State Pension Age, you’ll be entitled to the “new” State Pension, which will give you £185.15 a week. This works out at £9,627.80 each year.
Of course, to earn the full amount you’ll need to have 35 “qualifying years” on your NICs record. You’ll need at least 10 qualifying years to receive any State Pension.
The reason why the State Pension can be so important to your retirement planning is that, while it may be smaller than your private pensions, it is a guaranteed source of income. Furthermore, it rises in line with the rate of inflation, so you’ll typically have a similar amount of spending power year-on-year.
This stability can give you much greater peace of mind that you’ll always be able to cover the necessities. While the value of your other investments may fluctuate with the rises and falls of the stock market, you can be confident that you will have a solid reliable income throughout your retirement.
From 6 April 2023, you can only fill in NICs gaps going back 6 years
Even though you have worked hard throughout your life, you may not have the full amount of NICs. For example, if you took time off work to care for a family member or raise your children then you could have a gap in your record.
You can use the government website to check if you have any missing years. If you do, you can “buy” National Insurance credits to fill in any gaps, going all the way back to 2006. This is often a smart decision, as the expense now can potentially mean thousands of pounds of extra pension wealth down the line.
However, as of 6 April 2023, the government is changing the way these credits work. After this date, you will only be able to fill in gaps going back six tax years.
If you have missing years in your record from before this threshold, you will no longer be able to “buy” these additional years. That means you could miss out on valuable pension wealth when the time comes to retire.
So, it will be useful now to establish how much State Pension you receive and whether you have gaps in your record that you could fill before April 2023.
Working with a financial planner can help you to enjoy a comfortable retirement
If you want to enjoy a comfortable lifestyle in retirement, it’s important to ensure that you have enough wealth to support this. That’s why working with a financial planner can really help as you approach this important chapter of your life.
For a start, if you have gaps in your NICs record and you want to establish whether “buying” additional years will be beneficial, we can offer you useful guidance and advice. We can help you to establish whether paying additional NICs is likely to benefit you in the long term.
Working with a financial planner can give you much greater confidence that you’ll be able to enjoy the retirement you deserve when the time comes.
Get in touch
If you want to know more about how working with a planner can help you to meet your retirement goals, we can help. Please email hello@sovereign-ifa.co.uk or call 01454 416653 to find out how.
Please note:
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
