It forms the bedrock of most people’s retirement income. It benefits from inflation proofing and, over an average lifetime, is worth around £250,000.
Expressed like that, rather than the £196 per week the full state pension currently stands at, often makes people see it in a different light!
When planning for retirement, it’s important to know what you can expect to receive and when and whether there are any ways of increasing your entitlement.
These pointers might help you:
Ask for an IOM state pension forecast
The best way to establish what you’re likely to receive is to complete this attached form, sending it to the IOM Government. They will write back to you with this information and, in our experience, are very helpful in answering questions that people may have.
Increasing your IOM entitlement
You now need 35 “qualifying years” to receive a full IOM state pension. If you don’t have this, or it doesn’t look like you’ll have reached it by your state pension age, you may want to consider making voluntary additional contributions to increase your entitlement.
Qualifying years are usually accumulated by paying national insurance (NI) through work. In some cases, people receive state pension “credits” for the years they are not working (see point 3 and 4 below).
You can pay voluntary additional contributions each year in the lead up to your state pension age.
You can also make ‘backdated’ contributions to fill any incomplete years, going back for the last six tax years.
Each year currently costs £780 to fill.
Going back six years would cost approximately £4,700. This would provide £1,150 a year of extra state pension income for life, which increases with inflation.
You’ve got your “money back” after just over four years.
This form can be used to apply to make voluntary additional contributions.
A word of warning
What would not make sense, however, is to pay for these years from your own pocket when NI from work in the coming years would likely get you to the 35-year mark in any case.
State pension credits for parents not working and looking after children
You will receive annual state pension credits automatically if you qualify for child benefit and your child is under 12.
If you don’t qualify for child benefit because your household income is higher than £80,000 a year, you should let the IOM Government know using this form.
Completing this form should get you the state pension credits you’re entitled to for the years you are not paying NI through employment.
Grandparents looking after children can benefit too
If you don’t have a full 35-year IOM state pension record, you may be entitled to get state pension credits if you are a grandparent, or another qualifying family member, caring for a child under 12.
This would usually be where the child’s parent/s is working. You can apply here if this applies to you.
Find out if you are entitled to a UK state pension
If you’ve previously lived in the UK and paid national insurance there for at least three years, usually by having worked there, you may be entitled to some UK state pension income. You can check here to find out.
Like with the IOM, if you are entitled to some UK state pension and now live on the Island, you may be able to make additional UK contributions.
The UK, in recent years, has been allowing people to buy an additional 13 years of contributions, for example. The above link will show you the national insurance gaps that you have and can pay to fill.
Keep in mind
Making additional contributions to boost your state pension can make good financial sense. However, the rules do not allow you to make voluntary additional contributions in the IOM and the UK for the same year.
For example, someone approaching state pension age and no longer working may have done what we’ve suggested and obtained IOM and UK state pension forecasts.
They can see from both forecasts that they can potentially make additional contributions for past tax years, where they have NI gaps.
What they cannot do, though, is make these additional contributions in both countries for the same tax year(s).
You would have to select the one jurisdiction to make voluntary contributions in for any particular tax year.
You can, however, pay NI in one country through work and make voluntary contributions in the other for the same year.
So if you are currently working in the Isle of Man, you could potentially pay voluntary contributions in the UK.
Pensions are complex, and the state pension is no exception to this. Please seek professional advice if you are unsure of anything.
