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The amount of state pension you are eligible to receive effectively boils down to your national insurance (NI) record.
Some individuals’ records of so-called ‘qualifying years’ can be patchy. This has especially applied to women down the years, many of whom have taken time out from their working lives to bring up the children.
Fortunately, there are various ways to make up gaps in NI records. For example, one way involves making voluntary contributions. But there is also a little-known option aimed at grandparents who have cared for younger family members. Here’s how it works.
What’s on this page?
In the UK, there are two versions of the state pension. The new state pension was introduced on 6 April 2016. This, simplified, flat-rate payment was brought in to replace an older, two-tier arrangement which comprised both a basic and an additional pension benefit.
Regardless of which state pension you receive, both are (or would have been) calculated on an individual’s NI contribution record during their lifetime.
It’s been estimated that roughly half of the pensioners in receipt of the new state pension do not receive the full amount because they failed to pay enough in NI contributions during their working life. That means they’re potentially missing out on thousands of pounds in lost income.
There are various reasons why people reach the current state pension age of 66 (rising incrementally to 67 between now and 2028) without having met the necessary NI contributions requirement. But Susan Hope, a retirement expert at Scottish Widows, says it’s often women who miss out.
“What we know for certain is that women are much more likely than men to have gaps in their NI record, often because they take on a greater share of caring responsibilities. For example, more than a third, or 36%, of women have taken a career break to look after children, compared with just 3% of men.”
Hope adds: “While these breaks are often essential, they can have a lasting impact on retirement finances if people aren't aware of how they affect pension saving and their NI contributions.” According to research from Scottish Widows, as many as a quarter of women aged 55, or over, had been out of work for more than five years with a commensurate effect on their state pension entitlement.
The state pension currently pays a full rate of £241.30 a week, or £12,547.60 a year. But the exact amount you get will depend on your NI contributions. These will either have been met from earnings, or from credits if you were in receipt of certain state benefits.
Clare Moffat, pensions and tax expert at Royal London, explains: “To receive the full state pension, you usually need 35 years of NI contributions or credits. If there are gaps, it can reduce what you get.”
To make up any shortfall, it’s possible to plug missing years by paying voluntary contributions.
If you’re unsure of your entitlement, it’s possible to find out where you stand. If you’re yet to start claiming your state pension, you can check your NI record online and find out if you’re on track for the full payment with a free state pension forecast.
Aside from voluntary contributions, there’s also a way for grandparents to max out their state pension entitlement assuming they’re not receiving the full amount.
It’s commonplace nowadays for grandparents to chip in with childcare to help their own children, now parents themselves, deal with rising childcare costs.
Sarah Swinford, a financial adviser at Shackleton Advisers, explains that the government recognises this contribution with ‘specified adult childcare credits’.
She says: “These allow grandparents caring for children under 12 to receive NI credits. These credits help protect their state pension entitlement by filling gaps in their contribution record.”
Effectively, the scheme involves transferring NI credits that a working parent doesn’t need, over to that person’s parent.
The problem, says Clare Moffat, is that many eligible families, simply aren’t aware of the initiative, or think it will be harder to claim than it is.
“In my experience, these credits aren’t widely known about or understood. Some grandparents believe that they would have to look after grandchildren full-time to receive them and this isn’t true. It can be regular care during school holidays, or once a week all year round.”
In fact, the government guidance doesn’t actually specify a minimum number of hours that grandparents need to commit to.
Susan Hope adds: “Many grandparents have spent years helping with childcare without realising that they may have been eligible. Unless one goes actively looking for this information it is very easy to miss.”
Susan Hope says that claiming just one credit could make a big difference to your income over the course of your retirement.
“Under the new state pension system, each qualifying year of NI contributions is worth around 1/35th of the full state pension.
“Based on the current full state pension of £241.30 a week, each additional qualifying year could increase retirement income by around £358 a year. That might seem modest, but over a 20-year retirement, plugging just one missing year could be worth more than £7,000 in extra state pension income.”
If you’ve got gaps in your national insurance record and think you could be eligible, it’s important to check on the government website.
Susan Hope explains: “The child's parent or main carer should first check they have NI credits available to transfer. To apply, you'll need details about yourself, the child, and the periods of care provided, and both you and the child benefit recipient must sign the application.”
The working parent doesn’t necessarily need to be claiming child benefit, but they do need to be registered for it.
It doesn’t matter if you are already claiming your state pension or are no longer helping your family in quite the same way. It’s possible to backdate your claim all the way back to 2011, when the scheme was first introduced.
Susan Hope says: “Childcare credits can be claimed retrospectively provided the eligibility conditions were made in the relevant tax year. The difference could potentially be significant as each additional qualifying year added to your national insurance records can increase your future pension state entitlement, providing an extra income for the rest of your retirement.”
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