Almost 7 Million Adults Have Never Checked Their State Pension - Have You?

The State Pension forms an important part of retirement planning for millions of people, yet many adults do not know how much they could receive or whether there are gaps in their National Insurance record.

New research published by HM Revenue & Customs reveals that one in eight adults - approximately 6.9 million people - has never checked their State Pension forecast.

Perhaps surprisingly, people aged between 45 and 54 are more likely than any other age group to have never checked, despite this being an important time for making retirement plans. HMRC's research suggests that millions of people could therefore be missing useful information about their financial future.

Why do so many people put it off?

For many people, retirement can feel like something to think about later.

HMRC’s research identified several common reasons for delaying:

• 26% feel that retirement is still too far away;
• 24% worry about losing track of pensions from previous employers;
• 20% are concerned about how career breaks could affect their entitlement;
• 9.5% do not know how to check their forecast; and
• 5% believe the process will be too complicated.

These concerns are understandable. However, checking your State Pension forecast normally takes only a few minutes and can provide valuable information while there is still time to act.

What does your State Pension forecast tell you?

Your forecast can help you understand:

• how much State Pension you may receive;
• the date on which you are expected to become eligible;
• whether you are currently on track to receive the full amount;
• whether there are gaps in your National Insurance record; and
• whether there may be an opportunity to increase your entitlement.

The forecast is not necessarily a guarantee of the amount you will eventually receive. Your entitlement can be affected by future contributions, changes in your circumstances and any future changes to State Pension rules.

Nevertheless, it provides an important starting point for understanding what your retirement income might look like.

Why your National Insurance record matters

Your State Pension entitlement is generally based on your National Insurance record.

Gaps can arise for several reasons, including periods of low earnings, career breaks, living or working overseas, self-employment or time spent caring for children or relatives.

Some people may have received National Insurance credits during those periods, while others may have gaps that could affect the amount they receive.

In certain circumstances, it may be possible to make voluntary National Insurance contributions to fill missing years. However, paying to fill a gap does not automatically increase everyone’s State Pension.

Before making a voluntary payment, it is important to confirm:

1. whether there is genuinely a gap in your record;
2. whether filling that particular year would increase your pension;
3. how much additional pension you could receive; and
4. whether the cost represents good value in your circumstances.

The key point is simple: check before you pay.

The State Pension may not be your only pension

Checking your State Pension forecast is only one part of retirement planning.

Many people will also have workplace or private pensions accumulated throughout their careers. If you have changed jobs several times, you may have pension pots with several different providers - some of which may have been forgotten.

A useful retirement review should therefore consider:

• your State Pension forecast;
• your National Insurance record;
• workplace pensions from current and previous employers;
• personal pensions;
• savings and investments;
• other expected sources of retirement income; and
• the level of expenditure you are likely to need.

Looking at these elements together can give you a much clearer picture than considering the State Pension in isolation.

Don’t forget the tax position

The State Pension is taxable income, even though tax is not normally deducted directly before it is paid.

If you receive income from employment, a private pension, property, investments or other sources alongside your State Pension, the combined amount could affect your overall Income Tax position.

This can be particularly relevant where somebody continues working while drawing a pension or receives income from several different pension arrangements.

Understanding the tax position in advance can help avoid unexpected liabilities and make it easier to plan how and when different sources of retirement income should be taken.

A few minutes now could make a meaningful difference later

HMRC’s research highlights a significant gap between the importance of the State Pension and the number of people who have taken the time to understand their likely entitlement.

You do not need to wait until retirement is approaching. Checking earlier gives you more time to investigate missing National Insurance years, trace old pensions and consider whether your wider retirement plans are realistic.

At SWLA Accounting, we help individuals understand their tax position and plan for the financial implications of retirement. If you have several sources of income, are continuing to work while receiving a pension or would like help understanding how your retirement income may be taxed, please get in touch.

Your State Pension forecast may take only a few minutes to check - but the information could influence years of financial planning.