A Martin Lewis tip could add £360 a year to your state pension every year for life.
The Money Saving Expert founder has revealed on the latest episode of his podcast, The Martin Lewis Podcast on BBC Sounds and Spotify how those nearing retirement age can permanently increase their annual state pension payments.
The state pension system is currently tied to National Insurance contributions. It means that in order to get a state pension at all, you need to have worked, or looked after children, for a minimum of 10 years by the time you reach retirement age. Then, the state pension payments are gradually increased up to the maximum amount, depending on how many NI years you have on record, above 10 up to approximately 35 years, which is the maximum record for a full pension DWP state payment in retirement.
But Martin says there is a way you can increase your state pension payments – by simply buying missing years in your National Insurance record, which will pay for itself if you live a few more years.
Speaking on the podcast on Monday, April 20, Martin said: “The first thing to understand is the minimum number of National Insurance contributions that you need to have in order to get a state pension is 10 years. That’s the minimum, if you have less than 10 years, nothing counts.
“…Until last year you could buy back a huge number of years in one go and that was a transitional arrangement when we shifted from the old state pension to the new state pension. That’s gone, you can now buy back six years.”
Martin added: “When you hit state pension age, whether you get a state pension or not depends on the number of National Insurance years.
“Now you get National Insurance contributions from work, you can also get it when looking after children or if you were eligible for certain benefits, and you accrue them over the years.
“To get a state pension, you need a minimum of 10 years, to get a full state pension you need roughly 35 years. It isn’t 35 years, don’t think it is 35 years, whether it is 35 years or not depends, but let’s just say, roughly 35 years.
“Now if you’ve got between 10 years and the full amount of years, then each extra year that you have means you get a bigger state pension. An extra NI year is worth an extra £360 per year of state pension for you.
“So if you’re going to retire on less than the full state pension, and you can buy a year, even if it costs you £1,000, because it’s going to add £360 a year to your state pension, if you live just a few years once you get your state pension, you make the money back. And currently, the state pension is also triple locked, that means it rises with the higher of average earnings, 2.5% or inflation, so it’s completely unbeatable looking at the current system.
“The question for younger people though is ,the current system could change.”