The State Pension: are you eligible for it?
Retirement savings across the UK, in general, are low. As such, many Britons are relying on State Pension payouts to fund their retirement years. However, you may be surprised to learn that not everyone is actually eligible for the State Pension.
Here are three reasons you may not be eligible for it, or only qualify for a partial payment.
Lack of ‘qualifying’ years
One of the basic requirements of the new State Pension is that you have at least 10 ‘qualifying’ years on your National Insurance (NI) record where you were working and paid NI. They don’t have to be 10 years in a row. If, for some reason, you don’t have 10 qualifying years, you probably won’t be eligible for State Pension income.
Became a resident after 2015
It’s also worth noting that if you started paying NI contributions after 6 April 2016 you will actually need 35 years’ worth of NI contributions to qualify for the State Pension. This could affect you if became a UK resident after 2015. Those with between 10 and 34 qualifying years will receive a proportionate amount of State Pension income.
Contracted out
Another reason you may not qualify for the full State Pension — and this affects a huge number of people — is that you were ‘contracted out.’ You might have been contracted out if you were a member of a defined benefit pension scheme from 1978 onwards, or you were a member of a pension scheme at work before April 2012. Some stakeholder and personal pension schemes are also likely to have been contracted out. These people will have only paid partial NI contributions while they were contracted out, and are therefore not eligible for full State Pension payouts.
What to do
When you consider these three scenarios (and there are many more, and it’s often quite complicated), it becomes clear that there are millions of Britons who will not be eligible for the full amount of State Pension. Many people are frustrated by this. Yet if you’re one of these people, don’t panic. There are plenty of things you can do to boost your retirement savings, and here are two ideas.
Open a SIPP
A SIPP (self-invested personal pension) is a do-it-yourself pension that offers tax relief. Any money you put into a SIPP will be topped up by 20% by the taxman (for basic-rate taxpayers). SIPP accounts are easy to set up with providers such as Hargreaves Lansdown and they provide considerable flexibility as you can invest in a broad range of stocks, funds, ETFs and investment trusts. For example, through a SIPP, you could invest in one of these top-performing funds. Contributing regularly to a SIPP, and investing your money sensibly, could certainly help boost your income in retirement.
Open a stocks & shares ISA
Another option to consider is a stocks and shares ISA. This product is entirely tax-free, meaning that all capital gains, or income generated, are sheltered from the tax man. Like the SIPP, this product offers considerable flexibility and enables you to invest in a broad range of investments, meaning that it could help you build up your retirement assets.
The prospect of a retirement with no, or partial, State Pension payouts may seem daunting. However, there are certainly things that can be done to boost your retirement income if you don’t qualify for full State Pension payouts.
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