Everyone has their own Corfu, that special place in their hearts that they dream of escaping to one day. It is the reward at the end of a long life for all the years of effort, sacrifice, and toil.
For some, their Corfu isn’t a place, it’s simply time — time to finally live their ideal lives and do all the things they want to do.
Unfortunately, living a dream is often not free. It will likely take years of careful planning, saving, and investing on your clients’ part to achieve. The State Pension could provide their plans with a strong foundation.
It is important to remember that the UK State Pension isn’t guaranteed, and your clients will need to have made the necessary amount of National Insurance contributions (NICs) to qualify. However, if their record has gaps in it, it is possible to “purchase” credits retrospectively.
Read on to discover how your clients could utilise National Insurance (NI) credits to turn back time and ensure they have contributed enough to qualify for their full State Pension.
The State Pension is likely to provide your clients with a steady and useful retirement income
At Grey Parrot, our approach focuses on people first. We want to get your clients to a point where we can turn round to them and say: “You have enough. Stop investing! Go spend your money because you only live once”. The State Pension is a smart way of helping your clients get there faster.
The current full State Pension could provide your clients with £203.85 a week or £10,600 annually in the 2023/24 tax year.
Once your clients have reached the State Pension Age (SPA) of 66 (rising to 67 from 2028), they’ll be able to access a guaranteed monthly income provided by the government throughout their retirement.
To be eligible for the full State Pension, your clients need to have at least 35 qualifying years’ worth of NICs before reaching retirement.
Your clients will normally accumulate a year of “credit” if they:
- Paid voluntary NICs
- Worked and paid NICs
- Received government benefits due to being unemployed, ill, or acting as a parent or carer.
However, if your clients have gaps on their record — or too few qualifying years — they might fall short being eligible to receive the full State Pension.
Your clients should circle 31 July 2023 on their calendars — the cut-off date for the transitional arrangement
If your clients have taken a look at their NI records and discovered they are likely to miss out on the full State Pension, they shouldn’t worry. By taking a page out of Marty McFly’s playbook, your clients can go back in time and boost their records.
Now we’re not suggesting they hop in a DeLorean, race to 88mph, and literally travel back in time. But by taking advantage of the government’s scheme that allows retroactive credit purchases and the limited time transitional arrangements, your clients can effectively go back and fill in any gaps to ensure they can boost their State Pension.
Your clients can typically buy NI credits dating back six qualifying tax years. However, the government’s transitional arrangements allow individuals whose records began prior to 2016 to plug gaps by offering them the opportunity to purchase NI credits dating back to 2006.
This window closes on 31 July 2023.
According to MoneyHelper, the boost of retroactive credit purchases on your clients’ State Pension could be substantial with benefits such as:
- Every additional qualifying year added to your clients’ State Pension is effectively worth £275.08 each year (based on 2022/23 rates)
- Credits cost £163.80 for a year of Class 2 (self-employed) and £824.20 for Class 3 (employed)
- Purchasing credits might boost your clients’ retirement income by nearly £5,500 if they live 20 years past the SPA
- Their investment would break even within eight months at the Class 2 rate and three years at the Class 3 — everything earned beyond that is profit and another step towards their “personal Corfu”.
But before your clients check their flux capacitors and practice their best renditions of ‘Johnny B. Goode’, they could consider a few less costly ways to boost their records.
5 surprising ways your clients might have accrued unused NI credits
As your clients’ careers are likely to span decades, it can be very easy for them to miss out on simple opportunities to boost their retirement income, such as recovering lost pension pots or checking if they have unused National Insurance credits they could add to their record.
Your clients may have earned currently unused credits between 2006 and 2016, if they:
- Benefited from maternity, paternity, or adoption pay but didn’t earn enough in a qualifying year.
- Cared for a disabled, ill, or injured individual for 20 hours a week or more.
- Looked after a family member under 12, while your client was aged between 16 and SPA.
- Qualified for, but didn’t claim, Employment and Support Allowance.
- Received Statutory Sick Pay and didn’t earn enough for a qualifying year.
There are many ways to unexpectedly boost your clients’ NI record and the process of reviewing their record through the government website is relatively easy. The transitional window closes this summer, so your clients might need to act quickly to gain the maximum amount of benefit.
Remember: financial planning looks to the future and builds towards reaching that retirement dream. But occasionally looking backwards in time can uncover overlooked opportunities to secure future plans.
Get in touch
If your clients are worried about falling short with their retirement plans and possibly missing out on the State Pension, they should seek professional advice by contacting us at info@grey-parrot.co.uk or calling 02039 871782.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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