In this third and final article in our ‘Effects of Inflation on Your Pension’ series we explain how the State Pension keeps its value.
You contribute to your State Pension by means of National Insurance Contributions (NICs) which are deducted from your pay. The rate at which you pay NICs increased in 2016 when the new Single Tier Pension was introduced. You need to pay 35 years’ worth of NICs to qualify for the full Single Tier Pension. If you contribute for more than 10 years (about 8 of which must be at the higher rate) but less than 35, you will receive a proportion of the full rate commensurate with the NICs you have paid. Anyone who has less than 10 years’ contributions in total or from April 2016 will not qualify for anything from this scheme.
Currently, the full Single Tier Pension rate is £185.15 per week (so, just over £9,600 per year). This is a sum worth having but what will it be in April 2023 and how was that increase arrived at?
In 2010 a formula called the ‘Triple Lock’ was introduced to calculate the annual increase to State Pensions. The ‘Triple Lock’ mechanism, which has been used every year except 2022 when COVID 19 distorted the figures, provides for an increase worth the best of:
2.5% or Consumer Price Index (CPI) or Average Pay growth.
That means, using this formula, that the Single Tier Pension will rise by 10.1% (which was the CPI rate announced by the Government in October 2022) giving a revised rate of £203.85 per week (just over £10,600 per year).
You are probably a long way from reaching your State Pension Age (SPA) but it is not a bad idea to check your contribution record. You could do this by writing to the National Insurance Contributions Office at:
The Pension Service 9, Mail Handling Site A, Wolverhampton WV98 1LU.
Alternatively, you could check online. If you have had no breaks in your Armed Forces service, your NIC record for that period should be complete. If it is not, you need to challenge it and you will probably need the help of DBS to prove what has been paid on your behalf. If there are gaps in your record that should be there – for example, you took an unpaid career break – you can buy back up to 6 years NIC ‘cover’ by means of paying Voluntary Contributions (Class 3 NICs). More information about Voluntary Contributions can be found here.
Finally, SPA can change, so it is a good idea to check yours from time to time. It is quick and easy to do, just click here to keep yours under review. You can also obtain a State Pension forecast online here – and this could be of particular interest to those of you will not have paid the higher rate of NICs long enough to qualify for the full Single Tier Pension rate and do not intend working or paying Voluntary Contributions once you leave the Armed Forces
Read the first in this series here – CPI! Why does that matter to me?
Read the second in his series here – How does my pension grow during Service
Author Mary Petley: written for the March 2023 issue of Pathfinder Magazine
Published March 2023 – information correct at time of writing and may have been superseded
