Cost-of-living crisis: four tips to give your state pension a boost

Pensioners are likely to see a boost to their income next year after the government confirmed the triple lock will be reinstated. Katie Binns explains other ways you can maximise your state pension.

The state pension could rise 10% next April after the government confirmed the link between inflation and the state pension, a key part of the triple lock, will be restored.

The triple lock is a formula used to guarantee the state pension holds its value in real terms. The formula uses earnings, inflation or 2.5% to increase the state pension - whichever is higher.

Last year it was suspended after an expected increase of 8% in April this year was blocked: the government cited distorted figures by the pandemic as the reason and gave pensioners an increase of 3.1% instead.

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It means pensioners have endured a devastating cut in real terms as inflation hit a high of 9% in April. Not surprisingly, there were higher than normal withdrawals from shrinking pension funds in January and February. It’s a grim picture as pensioners are caught between ever-rising living costs and smaller available incomes.

Many retirees will be hoping the September inflation figure - traditionally used for the triple lock - will be in double digits and who could blame them? A 10% rise would mean those who receive the new state pension would see their annual income rise from £9,627 to £10,600 - a much-needed uplift of almost £1,000.

There are other ways you can get an uplift from your state pension.

Delay your state pension

You don’t have to take your state pension as soon as you reach 66. If you’re healthy and want to continue working - or have another source of income and don’t imminently need your state pension - you can actually delay it for a slightly higher amount.

For every nine weeks you defer it, you’ll get a 1% uplift. It means if you delay taking your state pension by a full year, you’ll get around 5.8% more.

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Deferring the new state pension of £185.15 a week (or £9,627.80 a year) for a year means you’ll get £195.89 a week (or £10,186 a year). That’s £558.48 more a year. You can, of course, defer for longer than that and get even more.

There’s an added bonus if you delay your state pension to work longer: you’ll be paying into a workplace or private pension for longer, which will up your income even more when you eventually retire.

Claim National Insurance credits you are entitled to

You need 35 years' worth of National Insurance credits (NICs) to get a full state pension. If there were years where you didn't get enough NI credits to give you a 'qualifying year', you may find there’s a gap or two on your record. It is possible to get National Insurance credits to help fill these gaps under certain circumstances.

For example, if you are a grandparent, aunt or uncle under pension age you may be able to get credit towards your state pension if you are caring for a child and do not get Child Benefit for them. These credits are free and may increase the amount you eventually get when you reach state pension age.

You can apply online for a free state pension forecast to check what you’re likely to receive.

Pay voluntary National Insurance

Some people can fill gaps in their National Insurance record by paying voluntary National Insurance contributions. The rules are quite complex so you should verify with Gov.uk first to see if it makes sense to do so.

Most people will pay voluntary ‘class 3’ contributions at £15.85 a week (or around £825 a year), or if they are self-employed and on a low income ‘class 2’ contributions at £3.15 a week (or around £164 a year).

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Usually, you can only pay for gaps from the last six years but currently you have until 5 April next year to pay for gaps between April 2006 and April 2016.

State benefits when you’re retired

Almost a million retired people are missing out on a state benefit known as Pension Credit despite being eligible. Around £1.7 billion is currently unclaimed - this is roughly £1,700 per household.

Pension credit is a benefit for those over state pension age and tops up a low income. If you qualify you may also be eligible for other benefits such as a free TV licence, a council tax reduction, cold weather payments and free dental care. You can apply via Gov.uk if you already claim your state pension or call the Pension Service (0800 99 1234).

Be aware that as you get closer to retirement you become eligible for discounts on public transport and free NHS prescriptions, eye tests and vouchers to help cover the cost of contact lenses and glasses.