How and why your employees should check for gaps in their State Pension

Discover how employees can identify gaps in their State Pension and understand why it could be practical for retirement planning.

When your employees are working towards retirement, it’s often easy for them to focus solely on building a significant private pension, and they may overlook the benefits of the State Pension as a result.

Some people seem to believe that it won’t even exist by the time they retire – as many as 71% of working-age Brits have this concern, FTAdviser reports.

Despite these concerns about its future, the State Pension remains an invaluable source of pension wealth for many, providing a steady and guaranteed income to cover essential living costs provided they have made sufficient National Insurance contributions.

However, your employees maximising their State Pension entitlement requires careful planning and effort on their part.

With that in mind, continue reading to find out why the State Pension is so practical during retirement and how your employees can check for gaps in their record.

The State Pension provides a guaranteed source of income in retirement

The State Pension is essentially a guaranteed sum of money the government pays to individuals when they reach State Pension Age and start claiming it, provided they have made sufficient National Insurance contributions. In the 2024/25 tax year, this age is 66, set to rise to 67 by 2028.

In 2024/25, the new full State Pension is worth £221.20 each week. While this might not be enough to cover all retirement expenses, it can form a crucial part of your employees’ overall income and act as the bedrock of their pension wealth.

Indeed, they could use their State Pension to cover any regular and essential costs, such as utility bills and food. This then frees up their other sources of pension wealth for more discretionary expenses, such as a dream holiday or long-awaited home renovations.

Perhaps the most significant benefit of the State Pension lies in its reliability. Unlike any investments your employees hold in their private pension, which can fluctuate with the market, their State Pension is guaranteed, providing a steady income even during periods of market downturn and volatility.

Better yet, the State Pension typically increases each year in line with the “triple lock”. This invaluable mechanism ensures that what they receive from the State Pension rises at the start of a new tax year based on one of three factors (hence “triple”).

The annual increase is determined by the highest of:

• Inflation
• Average wage growth
• 5%

This could give your employees the peace of mind that the State Pension will keep pace with the cost of living and continue to act as the foundation of their retirement income.

It’s worth your employees checking their National Insurance record to ensure they qualify for the full State Pension

It is important to note that in order to receive the full State Pension, an individual needs to accumulate 35 years of National Insurance contributions (NICs). At least 10 years of NICs are required to be eligible for any State Pension at all.

They typically accrue a year of credit – referred to as a “qualifying year” – when they make NICs from income earned by working. Aside from this, there are other factors that allow them to claim credits, such as caring for a child or receiving certain benefits.

However, even if they’ve worked hard all their life, there’s still a chance they may have gaps in their record as a result of:

• Working abroad and paying taxes in another country
• Taking time off work to raise children
• Being unable to work due to illness or injury.

For your employees, failing to plug these gaps in their record could result in a reduced retirement income when they eventually reach State Pension Age. So, it’s worth them obtaining a State Pension forecast from the government to identify any missing qualifying years.

If they discover gaps in their record after obtaining the forecast, they can make voluntary contributions to “buy” additional qualifying years. They need to remember that they can normally only do this for the previous six years.

Currently, as a result of transitional arrangements to a new system, they can fill missing years from between April 2006 and April 2016. This option is set to close on 5 April 2025.

Your employees may want to defer their State Pension

While it’s possible for an individual to start claiming the State Pension once they reach the required age, this doesn’t mean they necessarily have to do so.

In fact, they could choose to defer their State Pension instead. In doing so, they could receive higher monthly payments when they eventually decide to claim.

For every nine weeks they defer, their State Pension increases by the equivalent of 1%. Over the course of 52 weeks, this works out to an increase of just under 5.8%.

Using the 2024/25 figure on Gov.uk of £221.20 a week, they could receive an additional £12.82 each week – the equivalent of around £667 a year – if they defer for an entire year after the State Pension Age.

It’s worth noting that it could take some time to recoup the benefits of deferring if they don’t claim it initially.

According to MoneySavingExpert, it could take around 20 years of receiving State Pension after this to reach a breakeven point. Even if they defer for three years, they still won’t reach parity of what they would have earned for another two decades after they start claiming their pension.

As a result, there may be circumstances where deferring their State Pension isn’t the most suitable choice for your employees. For instance, if they’re in poor health, they may prefer to take their State Pension now so they can make the most of it to achieve their goals.

Get in touch

As an employer, ongoing financial education can be beneficial. If you’d like to learn more about how you can support your employees with their financial wellbeing, we can help.

Email info@second-sight.com or call us on 0330 332 7143.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028).

The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken. Past performance is not a reliable indicator of future performance. Pension savings are at risk of being eroded by inflation.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Accessing pension benefits early may impact on levels of retirement income and entitlement to certain means tested benefits. Accessing pension benefits is not suitable for everyone. Individuals should seek advice to understand their options at retirement.

The Financial Conduct Authority does not regulate will writing, estate planning or tax planning.