Many choices throughout our lifetime can impact the work we do, or don’t do before hitting retirement age. Taking time away from paid employment to raise children or to travel with a military spouse are common, but may lead to missing out on National Insurance Credits and ultimately, less state pension.
The good news is that there are steps we can take to ensure our time away from work does not negatively affect the state pension received in retirement. Here’s what you need to know if you are a military spouse or a stay-at-home parent.
Breaking Down NICs
The National Insurance record dictates the new state pension benefits received when you reach the state pension age. Usually, you need to have ten qualifying years on record to get any state pension, and 35 qualifying years to get the full benefit.
Contributions to your National Insurance record takes place when you are working, earning at least £157 from an employer each week or making contributions through self-employment income. But when you’re a carer who does not earn income or are away from your career because of a traveling military spouse, your National Insurance record isn’t growing.
Fortunately, National Insurance Credits are available to certain individuals even when they are not working. These help boost your National Insurance record, so you don’t miss out on state pension benefits.
Strategies for Military Spouses
Following the flag as a spouse is common, but it often means you are taken away from your job and the pension credits that go hand in hand. However, recent changes to state pension schemes allow military spouses who accompanied their significant other abroad after 1975 to claim National Insurance credits to increase pension benefits in retirement.
For women born after 6 April 1953, and men born after 6 April 1951, who traveled with a military spouse overseas can claim NICs dating back to 1975. So long as you have not already claimed credits, you simply need to provide evidence of service abroad and submit an application here.
If you have paid for NICs during that period of traveling with a military spouse, you may also get a refund of credits purchased since there was no need to pay!
For Non-Earning Parents
In addition to military spouses, non-earning parents may lose out on state pension benefits because they are not working. When the working spouse earns more than £50,000 since 2013, NICs seemed to be lost because the child benefit is no longer available for high earners.
But there are NICs available for this circumstance, too!
First, claiming the child benefit as normal and having your earning partner pay tax on it is beneficial to non-working parents who have a spouse earning between £50,000 and £60,000 per year. You will pay less tax than the benefits you receive back, and most importantly, you as the stay-at-home parent still get your NI credits.
Parents can also claim the child benefit but at a zero rate, which makes the most sense if the working spouse earns more than £60,000 each year. The child benefit isn’t received in this case, but NICs are still earned.
Finally, if you opted not to claim the child benefit because of the recent means-testing rules, you aren’t out of luck. So long as you have a child under age 12, you can choose to claim the child benefit as normal and pay tax on it or claim at a zero rate. Once you claim, you start earning NICs, but you can only backdate a child benefit claim by three months.
The changes to state pension benefits can be confusing if you traveled abroad as a military spouse or work as a stay-at-home parent. If you’re wondering how to optimise your state pension benefits for a sound retirement, get in touch with us today. We provide expert yet down-to-earth guidance on pension benefits and strategies for boosting them so you can reach your big picture financial goals.