If you are scratching around for extra spending money in retirement, as too many pensioners sadly are, it is worth checking that you are claiming all the state benefits you are entitled to.
Astonishingly, millions of retired people on low incomes fail to claim maximum support from the government, often because they do not know what is available.
Pension credit is perhaps the most startling example. Around three million pensioners are entitled to this means-tested top-up for those on the lowest incomes, but almost half do not even claim, Government figures suggest.
That means as many as 1.5 million pensioners could be getting more money every month, with minimal effort.
Could you be one of them?
Pension credit is an income-related benefit aimed at people over the state tension age, now set at 66 years old for both men and women.
Single people, including widows and widowers, can claim from that age. If you are in a couple, both partners need to have reached state pension age. This applies if you live in the same property, you do not have to be married or in a civil partnership.
How much you get depends on your total income. The lower it is, the more weekly support you will get.
Pension credit comes in two parts, the guarantee credit and savings credit.
The guarantee credit will top up your weekly income to a minimum level, which will be £173.75 for single people in the 2020/21 tax year, and £265.24 for couples.
If your total retirement income from all sources already exceeds that, you cannot claim. This includes state, workplace and private pensions, social security benefits such as Carer’s Allowance, and any earnings you still have.
It also applies to savings and investments worth more than £10,000. Each £500 you have is treated as £1 of income.
This calculation does not include the personal independence payment, attendance allowance, disability living allowance, housing benefit and council tax reduction, or any Christmas bonuses you may receive.
Savings credit is an extra payment to reward for people who have built some savings or retirement funds, including in a pension.
Single people get a credit of 60p for every £1 of income between £150.47 and £173.75 a week, in the 2020/21 tax year, up to a maximum £13.97. For couples the income range is between £239.17 and £265.20 a week, up to £15.62 a week.
Savings credit is no longer available to people who reached state pension age on or after 6 April 2016, which is the date the new, single-tier state pension was introduced.
However, if one partner in a couple reached state pension age before then, they may still qualify, provided they have remained continuously entitled to it since then.
How to claim Pension Credit
Website Gov.uk includes a pension credit calculator, to help you work out how much you are likely to get.
The easiest way to apply is by calling pension credit claim line on 0800 99 1234, from 8am to 7:30pm, Monday to Friday.
You can ask a friend or family member to call for you, but you must also be present.
You will need your National Insurance number, information about your income, savings and investments, and your bank account details.
The earliest you can apply is four months before you reach state pension age. You can claim any time afterwards, but payments will only be backdated for a maximum three months.
Many homeowners do not bother claiming pension credit because they assume they are not eligible, yet assets including your home and most personal possessions are not included in the means test, nor are pre-paid funeral plans or the surrender value of any life insurance policy you may have.
Pensioners who are carers, severely disabled or have certain eligible housing and council tax costs may get more.
Watch out for quirks in the system that may affect you. If you are claiming pension credit but move in with a new partner who is under State Pension age, you will stop getting it. Although you can start again, once they reach state pension age, too.
You do not pay tax on pension credit.
Topping-up the state pension
If your earnings or savings lift you above the threshold at which you can claim Pension Credit, there is another method of topping up your state pension, this time from your own funds.
You pay a lump sum from your savings, and in return get a higher inflation-proofed weekly income for life, paid by the state.
You need make 35 years of qualifying National Insurance (NI) contributions during your working life to claim the maximum state pension. If you have that, a single person will get £134.25 a week in 2020/21, if they retired under the old state pension before 5 April 2016, or £175.20 under the new state pension.
If you have less than 10 qualifying NI years, you will not get anything at all.
People have gaps for all sorts of reasons, for example, because they had low earnings, were unemployed but didn’t claim benefits, or were living abroad.
If you are in that position, you can make up the shortfall by paying subsidised voluntary NI contributions. This is worth considering if you are close to state pension age and do not have enough qualifying years to get the full amount.
Start by checking your NI contributions gaps on the Check your State Pension website at Gov.uk/check-state-pension.
What it costs
You can usually pay contributions covering the past six financial years. So you have until 5 April 2021 to make up for gaps for the tax year 2014/15, and so on. In certain circumstances, older people can go further back.
Typically, you will pay Class 3 NI contributions, which cost £15 per week of pension in the 2019/20 tax year, or £780 for the whole year, while 2018/19 costs slightly less, £14.65 a week. At time of writing, 2020/21 rates had not been published.
If you are self-employed with a low income, or live overseas, you may pay Class 2 NI contributions instead, currently £3 a week.
Whether it works for you will depend on whether you have the cash available, and also how long you expect to live.
The healthier you are, and the greater your likely longevity, the better deal it is.
The decision will also rest on whether you would rather manage your own cash, or get extra state pension.
Each year of voluntary contributions will boost yours state pension by around £250, which means it takes around three-and-a-half years to recoup your outlay, and you get the extra pension for the rest of your life.
Find out more here or call the National Insurance Helpline on 0300 200 3500.
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