When we are creating a financial plan for our clients, we take into account the current state benefits they might receive. When we project into the future there is no guarantee they will still apply, as women born in the 1950’s are unfortunately finding out. However, at the moment there is no reason to think for example anyone retiring in the next 20 years won’t receive some kind of state pension.
As Financial Planners it is our job to be aware of the state benefits that our clients may be eligible for. We recently had training from an expert in this field, Brian Tandy.
This is a very complex area, unfortunately not many people are well informed, including the people manning the helplines! Did you know there are over 50 different state benefits at the moment?
Here is what I learned!
There are three types of benefit
1. Dependent on National Insurance Contributions
2. Means tested
3. Non means tested
Contributory benefits include state pension, job seekers allowance and maternity benefit amongst others.
Means tested benefits are dependent on level of income and savings on a sliding scale from £6,000 to £16,000 after which you are not eligible. This includes benefits such as universal credit and housing benefit
Non means tested benefits are not dependent on NI contributions or financial criteria, they are decided upon very specific criteria including age or disability. Such benefits include the winter fuel payment (for now!) and attendance allowance.
So where do people come unstuck?
Firstly paying NI is not straightforward. If you have ever been a student, unemployed, had an earning break to bring up children or worked part time you may have not paid the correct amount of NI for the right number of weeks and years.
It is imperative you ask for a pension forecast every five years or so no matter how young you are. Why? Because you can go back 6 years and make changes or pay additional contributions which can be difficult to do later on. You may not know that you can claim credits for years whilst in education- worth pointing out to your children!
A little known handy tip for Baby Boomers, if you are looking after grandchildren for 20 hours a week or more you can claim NI credits
Form filling is another major hurdle. For example when applying for attendance allowance, which we recommend many clients do for their spouses and family members, most people underplay their needs. The questions ask about the personal abilities and many people over estimate the amount of support being provided by loved ones. Just because you are not paying for care, it does not mean someone is not caring for you! The forms are onerous and don’t assume the questions are evenly weighted – they are not.
Another pitfall is confusion with the pension system which has changed many times, so depending on when you have been paying NI different rules apply. It’s almost impossible to work this out for yourself- another reason to get that forecast!
If you do one thing today, call the Government pension forecast department today. You can get a forecast online but it might not be as detailed. All the phone numbers you need are in this link
This is a very quick overview, we've got years of experience here especially when it comes to pensions so if you have any questions give us a call at FMB.
Any figures stated are correct at June 2017