It is estimated that millions of people across the UK are worried about their pension prospects. If you are one of these people, now could be the time to take action, and with this in mind, today I’m going to outline the moves I would make to maximise my State Pension entitlement and secure my finances for the future.
1. Fill in the gaps
The new full State Pension is £168.60 per week, although the actual amount you will receive depends on your National Insurance record when you reach retirement.
According to the government’s literature, you need at least 10 qualifying years on your National Insurance record to get any new State Pension, with at least 35 qualifying years required if you do not have a National Insurance record before 6 April 2016.
If you do have any gaps in your National Insurance record, one of the best investments you can make is a voluntary contribution to fill in any missed years. It costs £780 to buy one year of contributions, considering the fact that this could translate into several thousand pounds worth of extra income in retirement, it is a terrific deal.
Anyone who has a gap in their National Insurance record from 2006/07 to 2015/16 has until April 5 2023 to fill those gaps to receive the new State Pension. Weighing up the cost versus the benefit of this, I think it is certainly worth checking out this option if you have any gaps in your contribution record.
2. Look for benefits
As well as filling in your National Insurance contribution record, there are several benefits you can claim when you reach State Pension age.
For example, Pension Credit can be claimed once you (or your partner) have reached Pension Credit age. This entitles claimants to a guaranteed minimum level of weekly income, as well as a number of other benefits, such as council tax relief, the possibility for cold weather payments (as well as the winter fuel allowance) and some claimants might be eligible for help with mortgage interest, ground rent and service charges. These benefits could potentially add up to several hundred pounds a a year of extra income.
Retirees who qualify for Pension Credit can also apply for Savings Credit, which is worth £15.35 a week for a couple over the State Pension age.
3. Start saving
One of the easiest things you can do to improve your level of income in retirement is to start saving now.
Over the years, the government has introduced a range of savings products and tax reliefs designed to make it easier for people to save for retirement, and today there are hundreds of products out there on the market.
One of the best products is the Self Invested Personal Pension or SIPP. For every £1 invested in a SIPP, the government will provide a top-up of 20% so, if you want to save £100, you only need to put away £80, and the government will add £20 on top.
Over the long-term, these savings can add up. According to my calculations, just £250 a month saved in a SIPP (£200 of personal contributions and a government top-up of £50) could grow to be worth as much as £103,000 over 20 years based on an annual interest rate of 5%.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.