As the UK State Pension age is set to rise to 68 for younger workers, a financial expert has warned the public that they could miss out on a large chunk of retirement cash if they fail to jump through all the tax hoops set out by the Government.
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The rules around the UK’s State Pension are well-known for being difficult to follow. Because of this, millions of workers are likely unaware that, even after decades of working, they might not qualify for the full monthly payment when they reach retirement age.
In fact, Britons could lose £275 every year of their retirement if they fail to make the necessary National Insurance contributions while they are working – which could be missed due to becoming a carer or working part-time. The current retirement age for workers is 66, but will rise to 67 by 2028 and younger workers may even have to wait until 68 to claim the State Pension.
To claim the full State Pension, workers need to have paid into the National Insurance system for 35 years. According to a financial expert for Money.co.uk, James Andrews, there are some ways to plan ahead if you are worried that you will not get your full entitlement.
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Speaking to the Express, Mr Andrews said: “Retiring with missing a single missing national insurance credit costs you a bit over £275 a year, every year of your life.
“That means in the run up to state pension age it’s vital you make sure you claim every qualifying year you can. To get the full state pension you need 35 qualifying years of National Insurance contributions, with people who have fewer than 10 years getting nothing at all.
“The first thing you need to do is work out where you stand – you can do this online here with nothing more than a Government Gateway ID and your password. Once you know where you stand, the good news is that there are several ways to boost your contributions in the run up to retirement.”
The government is also proposing a widening of the ban on exclusivity clauses in workers’ contracts. Since 2015, any clause insisting on exclusive service (i.e. a clause preventing a worker undertaking work for another person or company) has been unenforceable against those who have a zero hours contract.
In reality, the policy would make these clauses unenforceable in employment contracts where the guaranteed weekly income is below or equivalent to the Lower Earnings Limit which is currently £123 a week. Those who earn less than this threshold do not qualify for National Insurance credits.
To earn a National Insurance credit, workers need to make £123 a week from a single source of employment. Anyone making £120 a week from two jobs at the same time will get nothing.
On this change, Money.co.uk’s Mr Andrews said: “It sounds like good news at first – giving part-time workers more flexibility and requiring bosses to pay them a certain amount if they want exclusivity – but the reality could see people lose out.
“This change might give people a feeling of false security – letting them earn more money by taking on multiple part time jobs – but at the cost of a far poorer retirement.”
He added: “The simplest way to do this is to pay for missing years. You can make a one off payment to cover missing years all the way back to 2006 at the moment.
“It costs £824.20 to cover a missing year’s contribution, something that you will earn back in less than four years after state pension age.
“If you’ve got a bit of time to prepare, you can earn credits in a number of other ways too. People in receipt of a string of benefits – or helping out with childcare for relatives – can also qualify for a National Insurance credit without having to pay extra. So make sure you’re signed up for everything you qualify for.
“Even if you don’t take the money, making sure you’re signed up to child benefit or Carer’s Allowance means you get your National Insurance credit for that year. If you’ve passed state pension age, there are a few other routes to increasing your pension pot.
“For example, due to issues with the pensions system pre 2016, several thousand elderly, widowed and divorced women were underpaid, and ended up with a windfall of up to £23,000. If you’re in a similar situation, it’s essential to check and see if you’re due a payout.
“It’s also important to check you’re not owed any benefits you’re not already claiming – such as Pensions Credit, help with rent, heating costs, council tax reductions or even a missing pensions entitlement from a deceased partner.
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