Simple steps to top up your pension pot

Published on Friday 13 November 2009 19:43

WITH a basic state pension rise of just £2.40 to look forward to next year, the onus is on pensioners to ensure that they claim all the support for which they qualify.

The weekly payment rises to 97.65 in April, but about two million British pensioners already live in poverty, European Commission figures show. And with pensioners relying on savings interest for income suffering from rock-bottom rates, demands for more help for retirees struggling to make ends meet have intensified.

Two-thirds of Britons say the government does too little for the elderly in their retirement, with three-quarters believing there should be a substantial increase in the basic state pension, according to new research from longevity expert Club Vita.

The National Pensioners Convention has called for the weekly basic payment to be raised above 165 – the official poverty level, according to the NPC – or linked to the average growth in prices or earnings, whichever is highest.

The government argues that pension credits effectively boost the weekly basic payment to 130, but 3 billion a year in pension credits goes unclaimed. That figure rises to 5.5bn when unclaimed housing and council tax benefits are factored in.

More Scottish pensioners claim pension credit than elsewhere in the UK, but many more miss out due to low awareness of the benefits to which they are entitled. However, there are steps you can take to ensure you are getting the pension and benefits to which you are entitled:

&#149 Pension credit

This comes in two parts – guarantee and savings. The former tops up income to a minimum of 198.45 a week for a couple or 130 a week for a single pensioner, if their income is below that level. The latter is aimed at helping those who have made some private pension provision, explained Douglas Baillie, director of independent financial adviser Douglas Baillie Ltd in Perth. "However, it doesn't mean that every 1 saved makes the pensioner 1 better off since there is a maximum income threshold of 266 a week for a couple or 181 per week for a single pensioner before the credit is lost," he said.

To qualify for pension credit, council tax and housing benefit claimants must have savings of no more than 10,000, which rose last week from 6,000.

Income earned on savings is not taken into account until that limit is reached, after which you are assumed to get income of 1 a week. Another 1 a week is added for every 500 above the threshold.

&#149 Other benefits

Anyone getting the guaranteed pension credit is entitled to council tax benefit covering the whole payment, but it is estimated that two-fifths of pensioners entitled to council tax rebates fail to claim them. Those not getting the guaranteed pension credit do not get the full council tax benefit but may qualify for some discount, depending on their savings and income.

Pensioners on low incomes can also claim for assistance such as winter fuel and cold weather payments, a free television licence (to which all over-75s are entitled), the Christmas bonus, insulation grants, the central heating scheme and personal tax allowances.

For more information on benefits, contact your local council or your local Citizens Advice bureau. Also visit www.entitled. com to check you are getting everything you are eligible for.

&#149 State pension deferral

If you are retired but not already taking your pension you can defer drawing it. You can boost your weekly pension payment by 1 per cent for every five weeks that you defer, or get a lump sum plus interest of the base rate plus 2 per cent if you delay taking it for at least a year.

However the gains can be slim, depending how long you delay for, and it is generally inadvisable unless you continue to work past retirement or have a sufficient savings buffer.

You can get a forecast of your current state pension entitlement and the likely figure at retirement from the Pension Service (0845 300 0168 or www.thepensionservice.gov.uk).

&#149 Women and pensions

Just one in three women retires on a full state pension, compared with 90 per cent of men. Women currently need 39 years of national insurance contributions to qualify for the full basic state pension, but that falls to 30 years in April.

Those with fewer than than 25 per cent qualifying years (less than 7.5 years as of April) have no basic state pension entitlement, while those with contributions between 7.5 and 30 years are entitled to some level of basic state pension.

Those with an incomplete record can buy back years of contributions to boost their pension. To find out more, call the Pensions Advisory Service's helpline for women (0845 600 0806) or visit www.pensions advisoryservice.org.uk.

Susann Kulhas, the director of Edinburgh IFA Female Financial, commented: "If you have the ability to make up a shortfall in your basic state pension, do it.

"Depending solely on the state pension will result in an austere retirement, but I still believe they offer incredible value for money."

&#149 Get the best annuity

Shopping around for the highest annuity rate using the open market option can significantly bolster the income you get from your pension, with a difference of at least 20 per cent between the best and worst on the market. Smokers and those with health conditions may qualify for an enhanced annuity paying out a higher rate.

'You can exist, but there's no room for spontaneity'

LIVING on the basic state pension for a week was enough to make Paz Newis, of Town Yetholm in the Borders, think about kickstarting his pension savings.

Paz, 40, was one of several volunteers aged between 26 and 40 across the UK who spent last week living on 95.25 – equivalent to the weekly basic state pension – as part of an awareness programme run by Axa. All bills and outgoings were deducted from the amount, apart from mortgage or rent payments.

Paz, who works part-time at Harestanes Countryside Visitor Centre, had 62 left after deductions for bills and then spent 18 on food on the first day. "I found I had plenty of food for the week provided I planned ahead, although that left no room for spontaneity. I also happened to be at the supermarket when a lot of prices had been reduced so I took advantage of that."

After splashing out on cooking a meal for his girlfriend, Paz – who estimates that he currently spends more than 200 in the average week – had just 1.27 at the end of the experiment.

The biggest impact on his lifestyle was finding his day-to-day choices restricted. "I have had periods of unemployment in the past so I'm no stranger to living on a budget, but you have to choose what to do and what to rule out. The experiment confirmed you can exist on a basic state pension, but if you want to do more than exist you are limited."

Paz is not currently saving for retirement but that may change as a result of the experiment. He said: "I haven't made provisions for a pension but I'd certainly think about it now."