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How to catch up if you've got little or no pension

If you've built up little or no pension you may want to consider starting a personal pension as well as looking into any options for saving for a pension through your work. A good place to start is to find out how much State Pension you will be entitled to.

How much State Pension will you be entitled to?

To qualify for the basic State Pension you need to build up enough 'qualifying years' before you reach State Pension age. A qualifying year is a tax year in which you have sufficient earnings upon which you have paid, are treated as having paid or have been credited with, National Insurance contributions (NICs).

In 2011-2012 you need to have £5,304 or more of such earnings as an employee, or £5,315 or more if you are self-employed.

Depending on how many qualifying years you have you'll get a basic State Pension between the weekly minimum and maximum. For the 2011-2012 tax year these are £3.41 and £102.15.

Getting a State Pension forecast

A State Pension forecast gives you an estimate of how much State Pension you can expect to receive at State Pension age based on the current information about you.

Topping up your State Pension

If there are some tax years which do not count as qualifying years it's worth seeing if you can boost your basic State Pension by paying voluntary National Insurance contributions for those years. You usually have to make up the shortfall within six years from the end of the tax year for which they are being paid. You can do this even if you've already reached State Pension age - however there are some exceptions.

If you've missed paying National Insurance contributions because you were caring for a child or a sick or disabled person you should have been automatically credited with contributions for those years.

You should have automatically had the number of qualifying years you needed to qualify for a basic State Pension reduced if both of the following apply:

  • you've missed paying National Insurance contributions because you were caring for a child or a sick or disabled person
  • you reach State Pension age before 6 April 2010

This is because you would have had entitlement to Home Responsibilities Protection.

Home Responsibilities Protection was replaced by a new credit for parents and carers for people reaching State Pension age on or after 6 April 2010. This will allow you to build up qualifying years through new weekly credits for the basic State Pension and additional State Pension.

Find out more from The Pension Service by phoning 0808 100 2658 (textphone 0808 100 2198). Lines are open 9.00 am to 5.00 pm Monday to Friday.

Taking out a personal pension

Another way to make additional provision for your retirement is to take out a personal pension or a stakeholder pension. A stakeholder pension is a type of personal pension that must meet minimum government standards. For instance, you are allowed to make flexible payments and annual management charges are capped.

One of the main advantages of taking out a personal or stakeholder pension is that the government will pay tax relief on the contributions you make to your pension fund. For basic rate tax payers, this means that for every £80 paid into your fund, the government will pay a further £20.

Joining a company (occupational) pension scheme

If you work for an employer who runs a company pension scheme and are able to join it, you should see if it's in your best interests to do so.

Ask the scheme administrators to explain the benefits the scheme provides and how much of your salary you will have to contribute.

If you change employment you will probably not be able to continue to pay into the scheme. But any pension that you have already built up you will still be entitled to on retirement or can transfer to another pension scheme.

How many pensions can I have?

You can take out as many pensions as you wish, but each scheme will have its own administration charges. It may be worth seeking advice from an independent adviser before taking out more than one scheme.

Can I pay as much as I want into my pensions?

Since April 2006 you can contribute as much as you want into any number of pension schemes. Each year you will receive tax relief on your pension contributions up to 100 per cent of your earnings (salary and other earned income), subject to an 'annual allowance' above which tax will be charged.

Under changes announced by the 2009 Budget, from April 2011 the amount of tax relief will reduce if your income is £150,000 or more. Restrictions were introduced from 22 April 2009 to stop people making large additional pension contributions and getting full tax relief ahead of April 2011.

Financial advice

If you would like financial advice on catching up with your pension provision, there are several sources of free information available. These include the Pensions Advisory Service and The Financial Services Authority (FSA). Or you can ask an independent financial adviser to help you.

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