State pension payments in the UK are set to increase soon, thanks to the triple lock system, which adjusts pensions based on inflation, average earnings, or 2.5%, whichever is highest. This year’s rise will be 4.1%, in line with earnings growth.
However, GBNews reports that some groups may miss out on this hike. Experts warn that individuals with gaps in their National Insurance (NI) records need to take action quickly to ensure they don’t lose out on their full entitlement.
The Triple Lock System Explained
Under the triple lock system, state pension payments increase each year based on the highest of three measures: inflation, average earnings, or 2.5%. This year, with earnings growth at 4.1%, state pension payments will rise accordingly.
However, for those with gaps in their NI records, the pension hike may not be fully accessible. The rise will apply to the full new state pension, which is available to those who retired after April 6, 2016. Those on the basic state pension will see a smaller increase, which highlights the disparities in the pension system.
Three Groups at Risk of Missing Out
Three key groups are at particular risk of missing out on the full benefit of the state pension hike.
Individuals who have taken career breaks longer than six years may face significant gaps in their National Insurance contributions, preventing them from reaching the 35 qualifying years needed for the full state pension.
Similarly, those who have worked abroad may have incomplete contribution histories. If they haven’t addressed these gaps, they may not receive the full pension entitlement.
Additionally, individuals who have taken time off work for childcare or elderly care responsibilities may also find their NI records incomplete, which could affect their pension entitlement due to missing contributions.
National Insurance Gaps and Their Impact
To receive the full new state pension, individuals need at least 35 qualifying years of National Insurance contributions. If there are gaps in someone’s NI record, they can fill them by making voluntary contributions.
However, the deadline for addressing gaps dating back to 2006 is April 5. After this date, individuals can only fill gaps from the previous six tax years.
Jonathan Watts-Lay, Director at WEALTH at Work, cautioned:
“Those who have a gap of more than six years in NI contributions… may want to consider filling these gaps in their record now to ensure they are on track to receive the full state pension entitlement at retirement.”
How to Fill Gaps and What It Costs
For those wishing to fill in gaps in their National Insurance records, the cost is £17.45 for a week’s worth of contributions, or £907.40 for a full year.
While this might seem like a significant expense, it can provide long-term benefits. Filling these gaps could increase the state pension by £328.64 annually, which could amount to an additional £6,500 over a 20-year period.
However, experts warn that it can take a number of years to recoup what you pay in. Watts-Lay explained,
“It can take a number of years to get back what you pay in, so people should consider how long they expect to receive their state pension.”
Impact on Different Pension Schemes
While the full new state pension will rise by 4.1%, the basic state pension will see a smaller increase.
This creates a growing disparity between those receiving the full new state pension and those on the basic state pension, with the latter being at a disadvantage due to the way the triple lock is applied to different pension elements.
Furthermore, certain additional components of the state pension, such as the state earnings-related pension scheme (Serps) and the state second pension (S2P), only rise with inflation, not earnings.
As September’s inflation rate was just 1.7%, compared to earnings growth of 4.1%, these elements will effectively shrink in real terms, further disadvantaging some pensioners.
Experts like Stephen Lowe from Just Group have criticized the system, saying that it is “impossible to understand the logic” of the way the triple lock operates across different elements of the state pension.
Moreover, Andrew Tulley from Nucleus Financial warned that
“Millions of older pensioners will feel worse off, especially if they’ve lost the Winter Fuel Payment too.”
Many older pensioners who rely on these payments to cover their heating costs may be impacted by the combination of smaller pension increases and the loss of this additional support.
As the deadline approaches, Britons are urged to check their National Insurance records on the Gov.uk website to identify any gaps and take action before the April 5 cut-off.
