How do I make sure I get the full state pension at age 66? Steve Webb replies

I am confused by my state pension provision and wondering if you could explain it to me.

I am 64 years old and spent 30 years in the fire service pension scheme, and have another 11 qualifying years in various other jobs.

My forecast is:

Based on NI contributions until April 2022: £171.87 per week

If I contribute until April 2024: £183.52 per week

The most it could rise to: £203.85 per week.

I have 41 years of qualifying contributions, 30 of which are outsourced, so if I contribute another two years up to state pension age, how can this increase my pension by £11.65 a week?

If I already have more than enough qualifying years, it seems to me that paying another two years of contributions would only replace two contracted years with two fully paid years, which would not amount to anything close to the expected increase.

I estimate this would only be something like £1.32 per week.

Is there some mechanism that I haven’t understood? Or would you be wasting money buying extra years? Also, how could I increase my state pension to the full £203.85 per week? I’m struggling to make sense of this.

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Steve Webb responds: I agree that the information you see on the state pension forecast site can be confusing.

However, the good news is that you can boost your state pension at a relatively modest cost.

Let me start by clarifying the three numbers that have been presented to you.

The lowest figure (£171.87) is the pension he has earned to date. Even if he makes no further contributions, he will receive a pension of this amount.

The second number (£183.52) is the pension you could get simply by contributing from now until retirement age.

In your case it is two more years. I’ll explain in a moment how a couple more years significantly increases your pension.

The higher figure (£203.85) is the maximum state pension you could receive. This is the standard “flat rate” amount.

You could achieve this, for example, by working or contributing until retirement *and* paying contributions for several additional years from the changeover date in 2016, when the new state pension was introduced.

As for the amounts we are talking about, the key is to understand how the new state pension is calculated.

In short, this takes place in two stages.

First, they give you a “starting amount” for 2016 based on your contributions at that time. This is based on the greater of what you would have gotten under the old rules at this time and what you would get under the new rules.

To explain in more detail, the first calculation is how much you would have received under the old system if nothing had changed (a full basic pension for 30 or more years of contributions plus a bit of additional ‘SERPS’ pension for any years in which they were not subcontracted).

The second calculation is what would have been obtained in 2016 if the new system had been in place from the beginning.

This is a full, fixed pension for 35 years of contributions minus a large deduction for someone like you who had been paying the lowest “contracted” rate for many years.

In your case, it’s pretty clear that the old rules will give you a higher starting figure, so your starting amount for 2016 will be a full basic pension (currently £156.20) plus a bit of additional pension.

On top of this initial 2016 figure, they then add 1/35 of the full flat rate (£203.85) for each additional year of contributions you have since 2016/17.

This means that two more years would give you an extra 2/35 of the fixed rate or £11.65, which is exactly what you have been quoted.

But you can, if you wish, go much further.

From the figures you have provided it appears you have many ‘gap years’ after 2016. Each of these you complete will also add 1/35 of the full fixed rate or £5.82 per week.

If you had to cover four (plus working/contributing until retirement), this would take you to the maximum flat rate.

I have written elsewhere a simple guide on When it makes sense to top up the state pension and when you should be careful.

But in principle, for someone who is in good health and does not expect to receive benefits in retirement, paying a lump sum now to boost their state pension can represent excellent value.

Finally moving on to the practical aspects, I always emphasize that it is very important not to try to do all this by “DIY”.

Before handing over potentially thousands of pounds in voluntary NI contributions, you should speak to the DWP’s Future Pensions Centre, who can help you check that you are buying the “right” years and what impact this will have on your pension.

For readers who have passed state pension age, please contact the DWP Pensions Service.

You will then need to contact HMRC to obtain the 18-digit code number needed to ensure your contributions are linked to the correct NI account and to the correct years.

Although readers regularly report the challenges of contacting these hotlines, it is worth persevering as the increase in your lifetime retirement pension could be very substantial.