I’m one of 4million people who could miss out on a state pension – how you can avoid it too

WHEN I checked my state pension forecast, I discovered that of the last nine years that I’ve been registered on the system, only two qualified towards my state pension. 

While I was shocked to discover this, I’m far from alone. Over four million people missed out on a state pension qualifying year in the tax year 2018-2019, according to government figures.

There are lots of reasons that people can miss out.

For the last couple of years, I have been in full-time education, which explained the biggest gap in my record.

Then this year in April I became self-employed and haven’t yet met the threshold for National Insurance (NI) contributions leaving another hole.

An even more common reason people have gaps is because they haven’t claimed the benefits they’re entitled to, which means they miss out on NI credits. 

While it is worrying, there are some ways you can fix it. I'm lucky as I do have enough time to make up the contributions as you need a minimum of 35 years.

There are also ways to fix it. I will explain below.

For instance, as of 31 August 2017 100,000 families in London didn’t claim child benefit. 

Often this is because one or both parents earns more than £50,000, at which point you have to start paying some of the child benefit back. 

If you or your partner earns more than £60,000, then you need to pay all of the money back through self-assessment.

The hassle of doing this means that many parents don’t claim in the first place. 

But what most people don’t realise is that claiming child benefit also means you receive NI credits, which count towards your state pension. 

That means that for many stay-at-home parents it’s well worth claiming, even if you won’t benefit from the extra money. 

In fact, it’s possible to claim the benefit but ask for it not to be paid, so you get the NI credits without any of the hassle. 

To claim your NI credits you will have to complete the Child Benefit claim form available on the government website, but tick the box on the form that says you do not want to receive the payments.

Steve Webb, a partner at LCP said: “Child benefits are what allow parents to receive NI credits.

"So there are a lot of parents, mothers mostly, at home with their children not getting credits".

To get any state pension at all you need to have at least ten years worth of qualifying years on your NI record.

To get the full state pension, which is currently worth £179.60 a week or £9,339.20 a year, you need to have 35 qualifying years. 

The amount you get changes over time – rising in line with the cost of living.

Under current government promises your state pension is increased by the Consumer Prices Index (CPI) measure of inflation, increasing average wages, or 2.5%, whichever is highest.

This means your state pension should be worth considerably more by the time you retire. 

While there are rumours that the Triple Lock could be watered down, meaning state pensions will grow less quickly than expected, you’d still expect to see a significant rise.

How to find out what your state pension will be 

I was astonished when I found out how many of the past nine years wouldn’t count towards my state pension.

But if I hadn’t checked my record, I might have reached retirement without ever knowing. I only checked because my dad, who is a qualified tax advisor, suggested it. 

Anyone can look up how many qualifying years they have, and it only takes a few minutes, but far too few people do. 

Research from retirement specialist Just Group found that almost four in 10 people fail to check their state pension forecast before stepping back from work. 

Stephen Lowe, group communications director at Just Group, commented: “State pension makes up about half or more of income for 4.7 million of the 7.5 million pensioner households, so it is crucial people track how much they are likely to receive.” 

You can check what you are likely to receive in state pension by visiting the government website, clicking start now and answering some questions that will help calculate your future payments.

The most cost-effective way to plug holes in your record

One of my options is to pay voluntary NI contributions to make up the holes in my record. For someone approaching retirement, this is well worth doing. 

I found, with the exception of 2018-2019 which would cost me £369.60 to recover, six of the seven years I’d missed would cost £800.80 to recover, meaning plugging all seven gaps would cost me £5,174.40 in total.  

That sounds expensive, but with the state pension you’re likely to get back more than you put in through contributions. 

Each extra year you buy costs £800.80, which works out as £266.88 a year extra in retirement after about four years. If you live for twenty years after state pension age, that £800.80 will have earned you £5,337.60 in total. 

While it does make sense to make sure you have 35 qualifying years before you actually retire, filling in gaps at the beginning of your career makes little sense. 

If you have more than 35 qualifying years, you don’t get any extra state pension. So there’s no point paying extra now when I have plenty of time to build up a full record. 

In fact, for anyone who has missing years in their NI history, a really important step is working out why they didn’t qualify, and how to make sure that all the future years do.

Filling in gaps is important, but it makes sense to do that when you’ve worked out how many years you’ll be short by. 

For example, a 45-year-old woman who has been working since she was 22 might only have had 10 qualifying years in that time.

Of course, she could make voluntary contributions on the 13 years she has missed, but she’d also have 23 years till state retirement age.  

If all of those future years qualified, she’d have 33 out of the 35 years she needed, which means she’d only need to make voluntary contributions for two years rather than 13.

 If each year cost around £800, she’d save almost £9,000 by taking this approach.

How to make sure that each year qualifies towards your state pension entitlement  

Most people pay NI through their earnings, whether they work for someone else or are self-employed. 

To qualify each year you need to earn above a certain threshold. The national insurance class you belong to determines the threshold you belong to—there are four classes in total.

How much you earn plus your employment status will decide your class.

Most people who don’t meet those earning thresholds are likely to qualify for benefits, many of which confer NI credits. 

There are two classes of credits available, class one, which contributes to your state pension and possibly could make you eligible for other benefits, and class two, which solely contributes to your state pension.

Situations that mean you could be eligible for NI credits include:

• Looking for work
• Being ill, disabled or on sick pay
• Being on maternity, paternity or adoption leave
• Being a carer
• Being on working tax credit and many more.

Unfortunately, lots of people don’t know how it works or what they’re entitled to.

This explains why over four million didn’t make 2018-2019 a qualifying year. 

All instances in which you are eligible and whether you will receive such credits automatically or have to apply for them can be found on the government website.

Boris Johnson ‘reviewing numbers’ on triple lock to avoid pensions rising by £700.

Cabinet minister Therese Coffey drops biggest hint yet pensions triple lock will be ditched.

I’m a pension millionaire with over £1million saved – how you can do it too.