State pension could top £13k next year – but will you get it?

In April this year the state pension went up by 4.8% - taking the headline payment to £241.30 a week or £12,547 a year.

And from next spring, the state pension could be set to rise above £13,000. Average wage growth, one of three measures that can influence annual increases, is currently rising at 4.1%, which could deliver a £500 boost.

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But not everyone will get the full state pension. In fact, it’s currently estimated that only half of eligible people are getting the maximum.

That proportion does, thankfully, look like it’s set to rise. By the mid-2030s, the Department for Work and Pensions (DWP) has estimated that 80% will get the full rate.

Nonetheless, it still provides a sage reminder not to make bold assumptions about what you’ll get and take steps – sooner rather than later - to find out for sure. Only once you know can you take any necessary action to boost your payout and properly plan your retirement income.

With that in mind, we lift the lid on the mechanics of the state pension and explain everything you need to know to make sure you retire on as much as possible.

What do I need to do to get the full state pension?

The new state pension was introduced in April 2016 and with it came new eligibility criteria.

To get the full payment you now need to have made 35 years of qualifying national insurance contributions (NIC) – either through deductions from your earnings or credits, if you’ve been in receipt of certain benefits (previously you only needed 30 qualifying years).

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If you’ve got less than 35 years, but more than 10, you’ll get a proportional payment. If you haven’t got 10 years’ worth you won’t be entitled to any state pension.

Can I get more money if I built up entitlement under the old state pension?

This is where it gets complicated.

Some people reaching state pension age after April 2016 would have been better off under the old state pension – which was made up of the basic state pension, plus any additional earnings-related top-ups, such as the second state pension or SERPS.

But some of this entitlement will be protected.

This is how it works. Any NICs that you built up before April 2016 will be used to calculate what is referred to as your “starting amount” for your state pension.

This will be the higher of the following:

• The amount you would have received under the old system, up to 6 April 2016
• The amount you would have on record on 6 April 2016, had the new state pension been operating throughout your working life.

If your starting amount is higher than the full rate of the new state pension, you’ll receive the difference as a top-up, meaning you could actually get more than the headline rate. This is referred to as a “protected payment”.

Where your starting amount is lower, it will be boosted by NICs made after April 2016 until you either reach state pension age, or hit 35 years’ contributions.

When can I claim my state pension?

The state pension age was 66 for both men and women, but in April this year it gradually started the process of increasing to 67 – a process that will be completed by April 2028.

This means that, if you were born between 6 April 1960 and 5 March 1961, you will reach state pension age at some stage between the ages of 66 and 67.

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Meanwhile, if you were born between 6 March 1961 and 5 April 1977, you’ll have a state pension age of 67.

From April 2044, the process will repeat and the state pension will start rising to 68 (affecting those born on or after 6 April 1977). However, this could – potentially - be bought forward, depending on the outcome of the third state pension age review (which started in July last year).

How do I find out what I’ll get?

The best way to find out where you stand is to get a state pension forecast. It will tell you when you’ll become eligible, how much you’re on track to get and whether you have gaps in your record.

You don’t need to gather lots of paperwork and, if you have a government gateway account already, it should take less than a minute.

Can I boost my state pension?

If you have any gaps in your national insurance record, you may be able to plug them and increase your state pension payment.

Voluntary NICs effectively let you buy extra years.

At the moment it costs £956.80 a year to fill a whole missing year. So, based on the current state pension that would give you a further £358 every year (1/35 of £12,547) – meaning you should recoup your investment in less than three years.

Just note that you can only plug gaps going back six years (so to 2020).

But, before you invest in voluntary NICs, it’s important to double check that you aren’t missing any free credits that you should have received.

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Credits are available for a range of benefits including universal credit, job seekers allowance, carers allowance and child benefit.

There’s also a little-known hack if you’re providing any childcare for children under the age of 12, while their parents work. The “specified childcare credit” lets family members, like grandparents, take the national insurance credit that could have been awarded to the parent as a claimant of child benefit – potentially boosting their state pension by thousands of pounds.

Grandparents can only use childcare provided before state pension age, but it’s possible to make claims going back to 2011.

To make a claim you’ll need to apply directly to HMRC.

What about deferring?

If, like many people, you decide to work into retirement, you may not need your state pension as soon as you become eligible.

By deferring your state pension you’ll get an uplift to your payments when you do eventually claim. This works out as a 1% increase to your weekly payments, for every nine weeks that you defer, or just under 5.8% a year.

Based on the current state pension, deferring for a year, would therefore give you another £13.99 a week (or around £727 a year) for life.

This can be particularly helpful if you’re a higher-rate taxpayer when you reach state pension age, but are likely to pay basic-rate tax when you retire. But just bear in mind, it may take you over 15 years to recoup the income you gave up, so you need to factor your state of health into your decision too.

What do I need to know about state pension increases?

You’ll probably be aware that the state pension is currently protected by the contentious triple lock.

This policy guarantees that payments will increase each year by the greater of inflation, wage growth or 2.5% and, in recent years, it’s resulted in bumper hikes (10.1% in 2023).

Average earnings are measured between May and July from the previous year, while inflation is the annual figure registered in the previous September. As noted above, it seems that for the fourth consecutive year wages will drive the state pension increase.

But the cost of the triple lock means its future remains uncertain and it could be replaced by an alternative mechanism - although the government has confirmed nothing will change during this parliament.

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It’s also worth noting that the triple lock may not apply to your whole pension – which means increases may not be as much as you think.

The triple lock only covers the standard rate of new and basic state pension – it won’t apply to any additional payments, such as protected payments, deferral top-ups or earning-related elements. They will only rise in line with prices (the consumer prices index).

If you move overseas, it’s also important to note that you may not be entitled to any state pension increases and your payments could effectively be frozen.

So, while you will get increases to the state pension if you retire in the European Economic Areas (as well as Gibraltar and Switzerland) or any countries that have a reciprocal agreement with the UK, there are a number of popular retirement destinations where they won’t apply. This includes Australia, Canada and New Zealand.