State Pension - Your clients’ questions answered

Hi, everyone. Thanks very much for your time. My name's Craig Muir, and I'm joined by my colleague Justin Corliss, and we're both part of the Pensions Technical Team at Royal London. In today's webinar, we're going to look at the State Pension because this is an area our technical team and ourselves get asked about regularly. And you know what? I can understand why there are so many questions about this as there seems to be confusion around areas such as, you know, how much will you get paid? And I tell you what, you'll understand this confusion within the first few slides when we explain that there are actually three different full new State Pension amounts.

Other questions we get are; should someone defer taking their State Pension, whether the State Pension's taxable, should a client top up their State Pension, how would they go about it, and will I get my State Pension if I move abroad? So, we'll try our best to answer these questions and more, in fact, during this session.

But just a few housekeeping rules first. If you're watching this as a live webinar, you'll be able to raise questions using the chat facility down the left-hand side of your screen, and we'll get back to you with the answer as soon as we possibly can. Alternatively, you can raise your question with your usual Royal London contact if you prefer.

Now, if you're watching a recording of this, then obviously the chat facility won't be available, and you'll only have the option of raising your question with your usual Royal London contact. With regards to your CPD certificate, you'll actually need to answer some questions after the webinar, and what will happen is that will automatically generate your certificate.

Okay. That's the housekeeping over. I think that this session should be appropriate for everyone listening, especially advisers. Even those if you don't have any pension clients because almost all of us will actually receive the State Pension. Now, for this session to be CPD-able, we have to have learning objectives, and they are, by the end of the session, you'll be able to identify the frequently asked questions about State Pensions, explain the importance of the State Pension to your clients, and describe how you can improve your clients' State Pension outcomes.

Right. As you know, there are many, many questions clients ask about the State Pension. Probably the first one is, you know, "How much will I get?" Okay, so let's start with the basics of what and how much before moving on to some of the more detailed aspects. So, anyone who reached State Pension age after 6th of April 2016 and is eligible for a State Pension will receive the new State Pension.

Those reaching State Pension age before the 6th of April 2016, they receive the basic State Pension. Now we're not going to cover the basic State Pension today because it's been 10 years since we moved to the new version, but as you know, there'll be many people out there receiving the basic State Pension.

Now, to be eligible for the full new State Pension, you need to have paid 35 years of National Insurance contributions or received National Insurance credits for 35 years or have a combination of the two for 35 years, and you need to have paid or been credited with 10 years of National Insurance contributions to get any benefit at all.

And just remember, most people actually build up entitlement in their own right these days. Now, if your client does qualify for the full new State Pension in the 26/27 tax year, that will be £241.30 per week, or £12,547.60 per annum. Now, that's 52 times the weekly amount. And I put a question mark against this, as your client may confirm to you that they're getting a slightly different amount. And I should probably point out at this stage that you may see different figures for the annual amount of new State Pension, and that's because different government departments, they calculate it differently.

Now, the figure you'll normally see quoted is that £12,547.60, which, you know, is simply 52 times the weekly amount of £241.30. Fine. You know, that's nice and straightforward. But if your client's State Pension forecast says they're on track for the full new State Pension, it'll state the total amount is £12,590.69.

So why the difference? Well, the DWP take that weekly amount, they divide it by seven to get the daily amount, and then they multiply the result by 365.25, and that comes out with £12,590.69. Now, the reason is the DWP want to take account of leap year, so they apply that extra .25.

Then again, HMRC do it differently still. They take one week off the previous year's rate and 51 weeks of the current year's rate. So that would be £230.25 for the 25/26 tax year, and then £12,306.30 for the 26/27 tax year, giving us a grand total of £12,536.55. Now, that is what's used for tax purposes. Now, I'm only pointing this out in case your clients come to you with other figures and they wonder why this, why they differ.

But for today we're simply going to use the 52 times that weekly amount, that £12,547.60. But of course, you know, this is the full new State Pension and there are many reasons why your clients could get less or even more on occasion, which we'll cover later on. And clients shouldn't assume that everyone receives that amount automatically because entitlement depends primarily on the individual's National Insurance record.

And as mentioned already, broadly, someone normally needs at least 10 qualifying years to receive anything, 35 years qualifying years to receive the full amount under the post-2016 rules. In reality, you know, many clients have a more complicated record because they built up entitlement before April 2016 when a transitional calculation was introduced.

But for you as advisers, I think the key point is that the State Pension forecast is usually the best starting point. It shows the client's current estimate, the date they can claim, and whether more qualifying years could increase the amount. Clients still in work may be able to add further qualifying years automatically, while others may have gaps, they can fill through credits or voluntary contributions. We'll talk about that a bit later on. Now, the State Pension's often the bedrock of retirement income, so even relatively small improvements can materially affect the sustainability of their decumulation plan.

One final point, this time about the State Pension age. Remember, your client will no longer pay National Insurance on any income once they reach State Pension age. If they're still employed after State Pension age, they still won't pay it, but their employer continues to pay employer's National Insurance.

Another question is, when will I get the new State Pension? Now, the State Pension age rose from 65 to 66 between 2018 and 2020, and it's currently in the process of increasing again from 66 up to 67, and it's a gradual rise between April 26 to April 2028.

You can see the detail here. Now, there is legislation in place under the Pensions Act 2007 for a further rise from 67 to 68, and that's going to happen between 2044 and 2046. However, as the Pension Act 2014 provides for a regular review of the State Pension age at least once every five years, that's quinquennially subsequent reviews might see a change in these plans.

But the rise from 66 to 67 is happening as we speak, so I just wanted to outline these figures here. Now you'll need to remind your clients that they need to claim their State Pension as they won't just automatically start to receive it. But before they apply for it, just make sure they have the date of their most recent marriage, civil partnership or divorce, the dates of any time spent living or working abroad, their bank or building society details, and also any social security numbers if they have any foreign State Pension schemes.

Now, if your client's applying online, they'll also need the invitation code for the letter about getting your State Pension, and if they haven't received their invitation letter but are within three months of reaching the State Pension age, they should request an invitation code from the government's website. It's www.gov.uk/new-state-pension/how-to-claim. If you just go into Google and you put in new State Pension how to claim, you'll come up with the website.

There's also the option to claim by phone if they're within four months of the State Pension age by phoning the pension service, and the third option is to phone the pension service and ask them to send a claim form out. Your client would then complete the form and send it back.

Okay, that's the basics over. Let's move on and talk about how important the State Pension has become and will continue to be for many people. And I think everyone in our industry recognises the importance of the State Pension, even if your clients don't.

Now, the State Pension now provides a significant source of retirement income for the vast majority of pensioners, and the importance of the State Pension is highlighted in this graph from the Second Pensions Commission interim report, which shows that average State Pension age as a percentage of full-time average earnings from 1984, and then they projected it forward to 2050.

The average State Pension as a percentage of median earnings was roughly about 20% for 20 years from 1990 up to 2010. Then the percentage started to increase, and you can see from this graph it's projected to reach about 30% of median earnings by 2050ish. Now, that's the triple lock it's helping here.

In 2023/24, benefit income, which includes the State Pension, was the largest component of total gross income for both pensioner couples and single pensioners. It was actually 56% for single pensioners, and for pensioner couples it was 37%.

For the lowest income groups, the State Pension represents around 66% of income, and it's still 30-40% for some of the highest income groups. A non-means tested contributory State Pension provides people with a firm foundation for retirement without damaging incentives to save privately.

And when we move on and look at Pensions UK Retirement Living Standards later in the session, we'll demonstrate how important the State Pension is helping to achieve clients' aspirations for income in retirement.

Another question is how does the triple lock work? Now, this isn't specifically a question we've been getting asked, but essentially people wanted to know if the State Pension will carry on increasing, especially those who are closer to retirement. So, it's worth thinking about the triple lock and whether it's still working.

As you know, State Pension increases by the greater of 2.5% CPI or earnings. That's called the triple lock. Well, that was except for the increase with effect from April 2022, where instead we had a double lock in force, where the State Pension increased by 3.1%. That was the CPI from September 2021. Actually, what happened there the government decided to remove the triple lock because earnings had been running at 8%, and that was a temporary blip post-COVID. And it was predominantly due to very generous public sector salary increases. But the triple lock, it was reinstated in 2023, and the State Pension increased in April 23 by 10.1%, and that was based on the CPI from September 2022.

Now, the 8.5% increase in April 2024 seemed modest in comparison, and more recently, the State Pension increased by 4.8% in April 2026. There's just a few trends I'd like to pull out of this table. First, understandably, there's been a steady upward trajectory. The full new State Pension, it has increased every year, rising from £155.65 per week in April 2016 up to the current £241.30 in April 2026.

Although growth accelerated sharply after 2022, increases were actually relatively modest between 2017 and 2022, ranging from 2.5% to 3.9%. But from 2023 onward the rate of increase became much more pronounced. That 2.5% floor mattered in lower growth years, so that minimum triple lock guarantee was used in April 2017 and April 2021, which has helped maintain increases when earnings or inflation were lower.

And finally, I guess, the overall increase is pretty substantial. So, over the period, the weekly amount increased by £85.65, which is a rise of about 55% from April 2016 up to April 2026. But just remember, the State Pension triple lock was always intended as a means to increase the real term level of basic retirement income, not a permanent solution.

So, you know, I wouldn't be surprised if the Second Pensions Commission maybe set a plan for what level of State Pension is adequate and affordable with details of what will replace the triple lock when it's achieved that objective.

This certainly would be helpful to clients who are trying to work out their retirement income, and it could also benefit the government, especially when we consider the old age dependency ratio, which Justin is now going to look at, and I'll pass you over to him now.

Excellent. Thanks, Craig, and hi, everyone. Look, together, rising longevity and falling fertility rates are driving a sustained increase in that old age dependency ratio that Craig mentioned, and you can see on the screen at the moment. The number of people above State Pension age relative to those of working age.

Although the State Pension age increases have tempered increases in the old age dependency ratio to date, government projections show that the old age dependency ratio is expected to rise over the coming decades from 278 people over State Pension age per 1,000 of working age in mid-2022 to 293 in mid-2032, before reaching 313 by mid-2050 and 400, as you can see on the slide there, by 2076.

Now, this means that there will be fewer workers supporting each pensioner through taxation and National Insurance contributions. This presents challenges to intergenerational fairness and the sustainability of the pay-as-you-go State Pension system as servicing public spending on pensioners requires a greater share of tax revenue.

So, what can be done? Well, we'll need to see what the Pensions Commission say when they produce their final report in spring 2027 which in their own words, will set out our recommendations to government for a durable future pension system that is adequate, fair and sustainable. But clearly, the old age dependency ratio can't continue to increase like this graph. So, what could they do to temper this increase? Well, I suppose the government could encourage workers to continue to work to an older age if they can. Now, clearly there's going to be some occupations where that's impractical. They could increase the State Pension age further, which would mean people working longer. Scrapping the triple lock perhaps to a single rate increase or indeed a double lock would reduce costs. The government could increase National Insurance again. But look, we definitely need more people working. And of course, some of those points that I raised there are a bit of a political nightmare for some governments as well.

Anyway, let's move on to focus on something a little bit more positive. I want to take a few minutes to talk about the interaction between the new State Pension and the Pension UK Retirement Living Standards, which Craig mentioned just before. Now I'm sure you're all pretty familiar with the Pensions UK Retirement Living Standards.

They outline the retirement expenditure needed, although I will describe it as retirement income needed today just for ease of explanation. So, they do that for a minimum, moderate or comfortable standard of living in retirement, and they further break that down to a one or two-person household living inside or outside of London.

Now, this one that we're showing here is the two-person household. As you can see it breaks down the various activities that might be available within those different living standards. Now, the key to this is that it's an independent guide aimed at helping people understand the level of retirement income that they might need, excuse me, and as we know, the State Pension's going to play a key part in that.

This one is showing the figures for a one-person household outside of London. This is the one that we tend to focus on because it's a little bit easier to bring to life. So, what we've done here is we've put the retirement living standards into a table so that you can see the equivalent figures for inside and outside of London for a one-person household. Now, clearly, we don't have time to look at all of those today, so I'm going to focus on moderate outside of London, which Pensions UK estimate will require an annual net income of £32,700.

So, what we've done is we've grossed that up to take account of tax and then converted the annual income to a lump sum by dividing it by 5.7%. Why did we use that? Well, that was the best annuity rate we could find for a single person 66 years of age escalating by 3% to give some inflation protection with a five-year guarantee.

Okay obviously, you could use a different figure if you feel that would work better, but we're really just looking for an indicative figure here. So, if we use that rate, then somebody living outside London who is looking for a moderate income level in retirement needs to amass a pension pot of approximately £660,000 in today's terms to achieve this.

For many people, this will be completely disheartening, okay, and look unachievable to them, and it can put people off saving altogether. Remember, this assumes someone is targeting £32,700 at age 66. But of course, if they're wanting to retire earlier at, say age 60, for example, then the annuity rate would be lower and the resultant pot size higher.

OK now, the good news is that many people will receive the full new State Pension, and therefore, the fund required isn't nearly as high. We already know that the full new State Pension for the 26/27 tax year, Craig mentioned it earlier already, £12,547.60, okay? You can then work out what the shortfall is by taking the State Pension amount off, which is what we've done here.

So, the shortfall you can see is £20,152.40 per annum. So, to keep this as straightforward as possible, we've converted the shortfall in annual income that £20,152.40 once again to a lump sum, and once again, we've done that by dividing it by 5.7% and accounting for income tax. So, if we use that rate, then somebody living outside of London who will receive a full new State Pension and is looking for a moderate income level in retirement needs to amass a pension pot of approximately £440,000 in today's terms to achieve this. This might seem a lot more achievable to many people, and once again, it highlights the important role of the State Pension in retirement income planning.

I think it's really important for our customers, and your clients, to realise the importance of the State Pension, as this makes up a considerable proportion of most people's income in retirement. It also highlights the importance of getting a State Pension forecast, as a Freedom of Information request by Royal London to the Department of Work and Pensions, the DWP found for 2023 that only around half, it was about 1.7 million, about half of the 3.4 million people receiving the new State Pension got the full weekly amount.

Now, perhaps some of these 50% could have missed years where they could've topped up their State Pension, and we'll talk about that in a few minutes as it's still a very cost-effective way of securing income. So, it's very important for us not to assume that everyone will get the full new State Pension and for our clients to factor this into their retirement income planning.

Now, I just also want to briefly mention the value of the State Pension, as I don't think most clients will be aware of how valuable it actually is. You've probably already done the numbers and the maths on it. But to purchase the equivalent annuity of what, the State Pension would be in the open market would currently cost £220,000. I think that's a bit of an eye-opener.

Okay. Now I want to talk to you about some of the methods of improving your client's State Pension amount. Now, this won't be suitable for all clients, but for those it is suitable for, there can be a reasonable increase in their level of income for little or perhaps no cost.

So, from a consumer duty point of view, it's important that we consider all of the following. Okay? And here's one of the common questions that we get asked about: Should your client use deferment? So, deferring the State Pension is one of those decisions that sounds simple, but is rarely straightforward in practice, okay.

Clients often hear that delaying their claim means a bigger pension for life and assume that must be a good outcome, sometimes it is. But deferral is fundamentally a trade-off. The client gives up income now in exchange for a higher income later. Whether that works depends on tax, health, cashflow needs, life expectancy, and the availability of other assets.

For advisers, the value lies not in presenting deferral as inherently good or bad, but in helping clients understand when it fits their wider retirement strategy. So, let's look at how deferral works under the current rules. If an individual reaches State Pension age on or after the 6th of April 2016 and does not claim, their State Pension is automatically deferred.

They don't need to opt out, not claiming is what creates the deferral. Now, under current rules, deferring for at least nine weeks can increase the eventual regular pension with the uplift working at 1% for every nine weeks of delay. It's equivalent to just under 5.8% for every 52 weeks deferred, saved you getting the calculator out there.

Now for post-2016 cases, clients can also usually claim up to 12 months as a one-off arrears payment. Just to be clear, that will not be subject to the 5.8% increase if you take it as a one-off arrears payment. Another option is they could take increased regular payments.

Now, you should just be mindful here that if you take it as increased regular payments, the extra bit that sits on top of what would've been your standard new State Pension, the bit that represents the deferred increase. That will not increase by the triple lock. That part will only increase by CPI each year. So, it's important to be aware of that. And of course, the other option is they could use a combination of the two, where the period of deferral exceeds 12 months.

That point's important because many advisers and clients still associate deferral only with a higher lifetime pension. In practice, the rules are more flexible than that, although the economic value still needs to be tested carefully.

Right, the first planning test is usually break even. If the client gives up one year of State Pension, how long will it take for the higher future payments to make up the lost income? Now, gov.uk guidance notes that if somebody defers a full new State Pension for 52 weeks, it can take more than 15 years to recover the foregone year through the higher weekly amount.

That immediately tells advisers two things. First, deferral is generally a long-term decision. Second, clients in poor health or with pressing spending needs may find the economics less attractive than the headline uplift suggests. However, break even should never be considered in gross terms alone. Tax can materially change the result.

Now, a client still working at State Pension age will have their entire State Pension taxed at their marginal rate if they claim immediately. If they defer until employment income is stopped, more of the State Pension may fall within the available personal allowance, or at least be, you know, taxed at a lower rate.

In that situation, the effective cost of giving up the first year's income is lower than it appears to be on paper, because the client would not have kept all of that income after tax anyway. Now, in the first example there, or the top row of it we're showing the difference in the break-even age for someone who is a higher rate taxpayer when they defer the State Pension but then becomes a basic rate taxpayer when they take their State Pension.

So, if someone is a higher rate taxpayer at State Pension age of 66 decides to delay taking their State Pension for a year when they will be a basic rate taxpayer and takes it as deferred income rather than that lump sum it will take to age 77 to make up for that missed income.

However, in the second example, we're showing that if a client was either a basic or a higher rate taxpayer at State Pension age of 66, then delays taking that State Pension for one year, and once again takes it as income when they're still in the same tax bracket. So, they're still either a basic or a higher rate taxpayer, whatever they were before. The break-even age would be 80. And the other examples show the break-even age if the delay is two or three years.

Look, there are a couple of ifs and buts in this. What if someone just needs a higher income to make ends meet, and they're happy to work an extra year to achieve this? What if they were going to pay higher or additional rate tax on the pension, which would reduce it by almost half?

So, there isn't a universal right answer, and it'll come down to people's circumstances. However, don't forget the option of paying that State Pension income into a personal pension, which will receive tax relief. Or, I guess if the person receiving it has considerable wealth, they may prefer to pay this into a child or a grandchild's pension, which means the recipient will get the tax relief and all the benefits that come along with that as well.

Okay, let's break this down a little bit. Firstly, when deferral may be worth considering. So, it can be particularly relevant, deferral can be, in four broad situations. The first is where the client is still working and the State Pension would otherwise add to employment income. The second is where the client has substantial taxable income in the early years of retirement, maybe from large drawdown withdrawals, but expects or can manipulate their taxable income to fall later. The third is where the client has non-taxable assets such as ISAs or cash savings that can comfortably support spending during the deferral period, although presumably they'd want some taxable income to make use of their personal allowance. And fourth is where the longevity expectations are good and the client values higher secure income in later life.

Now, these cases have a common thread. The client can afford to delay, and there's a strategic reason for shifting the pension to a later period. The attraction is not simply the uplift itself, but the combination of higher inflation-linked lifetime payment and potentially better tax positioning. For some clients, that can be a very reasonable trade.

Now, when deferral may be less attractive is worth considering as well. So, deferral is usually less compelling where the client needs the income immediately, has limited alternative resources, or already has, you know, little tax to pay because most of their personal allowance is unused.

In those cases, taking the State Pension as soon as possible might be the more effective option. The same can apply where the client already has a modest level of private pension income that uses most of the personal allowance, but not enough to push them into a higher tax band or at a higher rate or something like that. Now here, deferral may simply produce a higher future pension that remains taxable without enough offsetting tax benefit to justify the lost income.

Health and family history matter too. You don't need to turn the State Pension discussion into a life expectancy seminar, but you do need to recognise that it's not a neutral variable. A client with serious health concerns may place far greater value on immediate income than on higher payment much later. Conversely a healthy client with longevity in the family may see more value in boosting secure income for later life, especially if investment withdrawals are expected to reduce with age.

Perhaps one of the most useful ways to think about deferral is as an income sequencing tool. If the client has sufficient ISA assets, taxable accounts or short-term cash reserves, those can be used to bridge the period before the State Pension starts. That can allow the adviser to preserve personal allowance flexibility, smooth taxable income, and potentially reduce early drawdown from pensions.

In some cases, the State Pension is deferred, not because the client's chasing the uplift, but because it helps create a more efficient order of withdrawals across the retirement journey. Now, this is also where the guaranteed nature of the State Pension really matters. Increasing a secure inflation-linked income stream can be valuable for clients who are concerned about late retirement spending confidence.

A higher State Pension can reduce future reliance on investment markets or simplify spending decisions in a very old age, and advisers should therefore weigh the qualitative benefit of more guaranteed income as well as the quantitative break-even calculation. I think that's really important, we hear a lot about some older clients being reticent to spend drawdown income for fear of running out of money, but we also hear in the same sort of research about people being very willing to spend guaranteed income that keeps coming in. So, quite a bit in that, I think.

Now, a useful way to structure the conversation, I think is perhaps to ask five questions. Does the client need the income now? What tax rate would apply if they claimed immediately? What assets could support spending if they deferred? How long is the likely break-even period once tax is considered? And how much do they value additional guaranteed income in later life?

Those questions usually move the discussion away from more simplistic rules of thumb towards a decision grounded in the client's actual circumstances. In many cases, the answer will still be to claim the State Pension at State Pension age.

But for some clients, especially those working longer or managing retirement income flexibly, deferral can be a sensible strategic choice. The adviser's role is to make sure the client understands both sides of the exchange. More later, but less now. And when that trade-off is explained clearly and modelled properly, deferral becomes what it should be, not a default, but a planning option.

Okay. What I'm going to do just now is I'm going to pass you back across to Craig to take you through the next section.

Thanks, Justin. So, our next frequently asked question is, how is the State Pension taxed? And while this is frequently asked, there are a lot of people who don't ever ask it. And you know what? There's a very good reason why.

The State Pension's often described by clients as tax-free, usually because no tax is deducted before it's paid. But that description's wrong, and if left uncorrected, it can lead to poor decisions around retirement income, deferral, and cashflow planning. The State Pension is taxable income and counts towards taxable income the same way as most other pension income.

Whether any tax is actually payable depends on the client's total income and amount of available personal allowance. If the State Pension is the client's only taxable income and remains within the personal allowance, there may be no tax to pay in practice. But that doesn't make it tax-free. It simply means that the client has enough allowance to cover it.

Now, this distinction becomes important as soon as the client has income from employment, a workplace pension, a personal pension, rental profits, or your savings interest outside tax shelters. Because once those income streams use up the available personal allowance, all or part of the State Pension can become taxable So, you know, you should be careful with the language here, as saying, "Oh, tax isn't deducted from it," is not the same as saying it isn't taxable. That nuance matters when clients compare income options or think about delaying their claim.

Now, if we think about how the tax is collected, now unlike many occupational personal pensions, the State Pension is not usually taxed at source under PAYE before payment. Instead, what happens is HMRC normally adjust the tax code on another source of income to collect the tax due.

For example, a client receiving an occupational pension alongside the State Pension may see a reduced tax code applied to the occupational pension so that the combined liability is collected across the year. If the client doesn't have any PAYE source from which tax can be collected, HMRC may use self-assessment or another collection method depending on the circumstances.

Now, this often causes confusion because the client sees a State Pension arriving in full and assumes that no tax applies. I think a useful adviser conversation is to walk through the client's income sources in order and identify where the personal allowance has been used first. And this is especially relevant in the first year of retirement where, employment income, pension commencement lump sum, drawdown income, and the State Pension may all be overlapping in a way that the client didn't expect.

The personal allowance remains central to how the State Pension is taxed. If a client has little or no other taxable income, some or all of the State Pension may sit within that allowance. However, the State Pension effectively sits with other income and is taxed at the client's marginal rate. For many retirees, that may mean basic rate tax. But for those still working past State Pension age or drawing substantial pension income, the State Pension could fall into higher rate tax or contribute to the tapering effect around the income thresholds.

Now, this is why advisers should look at the State Pension not in isolation, but as part of the sequencing of retirement income. In some cases, it may be sensible to draw more from ISAs before the State Pension starts because, as ISA withdrawals don't use up the personal allowance. In other cases, clients may wish to moderate taxable drawdown in years when the State Pension begins to avoid pushing unnecessary income into a higher band.

Now, the government has indicated that people whose only income is the State Pension will not be required to pay small amounts of tax if the full State Pension rises above the personal allowance. Although, I would suggest that you check the latest legislation and also HMRC guidance because the implementation details are still evolving.

The first tax year in which a State Pension starts can be messy. A client may have, salary for part of the year, they may have redundancy pay, accrued holiday pay, partial year private pension income, and then the State Pension commencing later in the tax year. And because the State Pension's paid in arrears and tax collection on other income may not immediately reflect the final position, underpayments can arise.

The clients who believe their payroll deductions were sorted can be surprised by a coding change or a later reconciliation. And I think that you as advisers can help by pre-empting this. You know, a simple year-one cash flow forecast that maps taxable and non-taxable income by month can significantly reduce confusion.

And this is particularly helpful for the clients transitioning gradually out of work. You know, they have more than one pension source, or they want to start flexible withdrawals before reaching State Pension age. Obviously, the tax friction is often a product of timing, not just amount.

Now, the best way to handle the taxation of the State Pension is to make it visible in planning discussions rather than leave it as a background assumption. Advisers should identify when the pension starts, which income source is expected to bear the PAYE adjustment, whether the client's personal allowance is already fully used, and whether sequencing changes could improve the outcome. It's also a good area for client education because once people understand that taxable does not always mean tax at source, much of the confusion falls away.

Ultimately, the State Pension may be one of the most reliable sources of retirement income, but it's not administratively simple in the client's mind. Clear tax explanations can prevent budgeting errors and reduce complaints and support better decisions on retirement timing and income withdrawals, and that makes taxation of the State Pension not just a technical issue, but really a core advice issue.

Should I top up my State Pension? Now, this is one of the most common questions we're asked by consumers, and you know what, it's mainly due to Martin Lewis and his campaign to explain the benefits of topping up State Pension. In fact, it was so successful at the time it broke the DWP, but you know what, that was a good thing because it meant that the deadline was extended so more clients were able to top up.

Now, voluntary Class 3 National Insurance contributions can be a cost-effective way to fill gaps in a client's National Insurance fund record and potentially increase their future State Pension. But you should treat this as a planning exercise, not an automatic recommendation. Paying voluntary contributions won't always improve a client's outcome.

Right. Class 3 contributions, they are voluntary payments that may allow clients to turn incomplete National Insurance years into qualifying years for State Pension purposes. Clients can usually pay for gaps in the previous six tax years, with the deadline falling on the 5th of April each year. Now, for the 26/27 tax year, the Class 3 voluntary contribution rate is actually £18.40 a week. So that's £956.80 for one year, and that will provide a 35th of the new State Pension, so that's £380.50. Therefore, if that was intact, you would break even within three years.

Now, before paying, clients should check whether they're eligible for National Insurance credits that could fill gaps for free, and we'll talk a bit more about that in a few minutes' time. Voluntary contributions don't always increase a client's State Pension, so the client should check their National Insurance record and State Pension forecast first.

Clients below their State Pension age, they can contact the Future Pension Centre, and clients who have reached State Pension age and they have some gaps and they were thinking about paying voluntary contributions, they can contact the Pension Service.

Now, the Class 3 contributions may be relevant where a client has gaps in their National Insurance record and, these gaps are preventing them from qualifying for or maximising the State Pension. And common examples include clients who have taken, career breaks, they've spent time caring without receiving credits maybe they've lived or worked abroad, had periods of low earning, and maybe they stopped work before State Pension age or had incomplete self-employment records. However, a gap is not the same as a benefit.

If a client's already on track to receive the full State Pension, they'll build enough qualifying years through future work or credits or is affected by transitional rules linked to periods of contracting out, paying for a specific year may not increase their State Pension. So, you know, you should just be a bit careful about using a simple gap equals top up approach.

Class 3 top ups can look attractive because a one-off contribution may secure additional inflation-linked State Pension income for life. And in many straightforward cases, the break-even period can be relatively short compared with typical retirement durations. However, just be wary of presenting this as a guaranteed investment return. The value depends on the client's individual record, their longevity, their tax position, their future working pattern, and whether higher State Pension income could affect eligibility for means tested support.

Now, I always think that National Insurance credits are one of the most overlooked ways of protecting a client State Pension entitlement. As I mentioned at the start, an individual usually needs at least 10 qualifying years to receive any new State Pension, 35 qualifying years for the full amount. Although, you know, transitional rules can mean some clients need more or fewer years depending on their pre-2016 National Insurance history. Now, that qualifying year can be built through paid employment, self-employment, voluntary National Insurance contributions or credits.

So, credits can therefore have real monetary value. A missing year may reduce the eventual State Pension, while a credited year may help preserve or improve entitlement without the client having to pay voluntary contributions. Now, this is especially important because once a client reaches State Pension age, the opportunity to fix some historic gaps may be limited, or at the very least be administratively harder.

Advisers should therefore treat the National Insurance record as part of retirement fact-finding. Now, the most obvious beneficiaries are clients with gaps in their National Insurance record who have not yet built and are unlikely to build enough qualifying years for the full State Pension. And this includes people who have taken career breaks, maybe work part-time below the relevant earnings threshold, stopped work to care for children or adults, maybe been unemployed without fully understanding the benefit system, or had periods of ill health.

Now parents and guardians are a key group. A parent registered for child benefit for a child under 12 can receive Class 3 credits automatically, even if they elect not to receive the child benefit payments because they're worried about the high-income child benefit tax charge. And this point's often missed by higher income families.

A parent may decide not to take the payment, but failing to register at all can mean losing valuable National Insurance credits. In adviser conversations, this can be particularly relevant where one parent may have stepped back from paid work while the other has a high income.

Carers are another important group. A person receiving carer's allowance may receive credits automatically, but people who care for someone for at least 20 hours a week and don't receive carer's allowance may need to claim carer's credit. Now, that can include clients caring for an elderly parent, a disabled partner, or another adult. Your client may not think of themselves as a carer, so advisers should ask practical questions about unpaid support provided to family members.

Grandparents and other family members can also benefit through specified adult childcare credits, and I'll talk about this in a bit more detail later. Just be aware that credits may be less useful for clients affected by transitional State Pension calculations.

So, you know, people with significant pre-2016 contracted out histories may not see a simple one-for-one uplift from adding a year, and some may need more than 35 years to reach the full new State Pension. Conversely, some may already have a protected amount. So, advisers should therefore avoid relying on headline rules alone, and you should use the client State Pension forecast and National Insurance record.

Now, for advisers, the key is to integrate National Insurance credits in just into your standard retirement planning process. Now, I've included an action plan, maybe it's more like just like a checklist, which may help you here. So, ask every retirement planning client to obtain their latest State Pension forecast and National Insurance record before advice is finalised. Review the record year by year and identify any incomplete or non-qualifying years.

For each gap, ask what the client was doing at the time, including, you know, employment, self-employment, childcare, caring, illness, unemployment, study, or time overseas. Check whether any missing year could be covered by automatic credits such as child benefit or job seekers allowance, employment and support allowance or maternity allowance.

Consider whether an application may be needed for carer's credit, specified adult childcare credits, foster carer credits or credits linked to low earnings during statutory sick pay or parental pay. Confirm whether client's already on track for the full State Pension as an additional credited year may not actually improve the outcome. And before recommending voluntary National Insurance contributions, check whether credits could fill the same gap at no cost.

When it comes to couples, review both the National Insurance records separately, especially where one partner's taken time out of work or has lower earnings. Now the conversations often most valuable with clients who have complex working patterns such as, you know, parents returning after childcare or self-employed clients with low profit years, executives who didn't register for child benefit, unpaid carers, people approaching retirement after redundancy, and couples where one partner has a much weaker National Insurance record than the other.

It can also be valuable for divorce planning for later life advice, and also intergenerational planning where grandparents provide childcare. Advisers should also frame credits alongside voluntary National Insurance contributions. I mean, voluntary contributions can be attractive where they increase the State Pension, but they shouldn't be the first assumption.

If a client can obtain credits for free, that might be the better outcome. Conversely, you know, where credits are unavailable or insufficient, voluntary contributions may still be worth considering subject to the client's forecast, you know, their life expectancy, tax position, affordability, and wider retirement objectives.

If you have a client who is an eligible family member and provided or provides care for a child under 12, then they may be able to claim for Class 3 National Insurance credits, which would count towards their State Pension. Of course, it might not be your client who's providing the care. Possibly it will be, you know, a grandparent providing care to a grandchild, and this could be a good way of boosting their retirement income.

And we're very conscious, some people are retiring early, maybe early 60s, in order to help with childcare for grandchildren, and that they may have been aligned for the full new State Pension if they carried on working. But as a result of retiring early, they're going to come up short of these, the full 35 years National Insurance. So, you know, please bear in mind, if you have clients in this position and/or their spouses, they may be able to apply for specified adult childcare credits.

But just a few details about this. These credits, they work by transferring the weekly National Insurance credit a parent or carer gets as the child benefit recipient to an eligible family member and can help to stop gaps in a National Insurance record. The carer will get a Class 3 National Insurance credit for each week or part week they provided care for the child.

Now, there's only one credit available for each child benefit claim, no matter how many children are on the claim itself. So, for example, if you've got two grandparents providing care for their daughter's two children, there's only one credit available for transfer, and the child benefit recipient must decide who should have the credit.

If the grandparents provided care for their, say, their daughter's child and their son's child, there are more likely to be two child benefit recipients, and this means two credits are available for transfer. If no one's claimed child benefit for the child, there is no attached National Insurance credit to transfer.

This means credits cannot be awarded, and this highlights another reason why it's important to apply for child benefit. Remember, there is an option in the child benefit form which allows for the client to claim the National Insurance credits without receiving the actual child benefit, which prevents any high-income child benefit tax charge being applied.

So, who can apply? Well, you can see on the screen. As long as you're an eligible family member who provided care for a child aged under 12, you were aged 16 years and over, but under State Pension age when you provided care for the child, you're ordinarily resident in the UK, but not the Channel Islands or the Isle of Man. The child's parent or main carer has claimed child benefit but does not need the credits themselves. The child's parent or main carer agrees to your application.

And by the way the definition of an eligible family member is pretty wide, okay. It's mother or father who doesn't live with the child, grandparent, great-grandparent or great-great-grandparent, an aunt or uncle, brother or sister, and that includes half-brother, half-sister, stepbrother, stepsister, adopted brother, adopted sister. You're also classified as an eligible family member if you're either the current or previous spouse, partner or civil partner of anyone in the list, or son or daughter of the current or previous spouse, partner or civil partner of anyone in the list.

Now, there's no need to apply if they already have a qualifying year of National Insurance, usually because, they work or they're getting other National Insurance credits or are receiving child benefit for any child and already get credits automatically.

Okay, the next frequently asked question is will I get my State Pension if I move abroad? And I'm passing this back to Justin. He's very keen on this subject.

Right. As you can see here whether you receive an increase in your State Pension differs from country to country. If you live in the European Economic Area or Switzerland, you will not only receive your State Pension, but you will receive the annual increases.

Likewise, the list of countries on the right-hand side of the screen. But there are a number of countries where you won't receive cost of living increases, and these include Canada or New Zealand, or in fact anywhere else that's not on the list there.

So, I guess the next question is what happens to my State Pension when I die? We get that one quite a lot. Now, what happens to your State Pension on death is a very common question, and you might find some clients assume that all, some or all of it their State Pension will automatically transfer to a surviving spouse or civil partner. However, under the new State Pension system, that's generally not the case.

As we stated at the start, most people build up entitlement in their own right, and the standard new State Pension doesn't normally pass across on death. However, there are some important exceptions linked to pre-2016 rights, inherited additional State Pension and protected payments. These transitional features mean the answer depends heavily on the dates and on the types of entitlement involved.

For advisers, I think this question could trigger a broader review of survivor income. Where one member of a couple relies heavily on the other's pension income, the loss of income on first death can be significant. The State Pension may continue for the survivor at their own level, but inherited rights could be limited.

And this is particularly important where one spouse has a large perhaps defined benefit pension and the other has maybe a patchy contribution history, or the couple's expenditure assumptions have been built on a joint life basis. You know, the State Pension itself may be only one part of the picture, but it's often the starting point for understanding resilience after bereavement.

Now, sharing of State Pension on death is pretty complicated, as it depends on when your entitlement started and the date of birth and death of one or both of the parties. Now I don't have time to cover every instance today, so I'm just covering the most common scenarios. But do be mindful that for people born before 1945 and where death occurred before 2002, the rules are a bit different. You probably won't come up across those too often, though.

So, disregarding those instances, under the old system, the earnings-related element can be shared with a spouse or civil partner on death. Now, note that is not available to cohabiting couples, nor if there's been a divorce and subsequent remarriage. Also, if someone is receiving less than the basic State Pension, and this was often the case for women who were paying what you might have heard referred to as married women's stamp, then they may be able to get an uplift to their basic State Pension on death of their spouse or civil partner. It does apply to men too, but it's more commonly relevant for female survivors.

Now, under the new system, with the new State Pension, the new State Pension can't be shared, but a protected payment, that's the extra payment resulting from being entitled to more than the full new State Pension when the transition calculation was done in 2016, can be shared by a spouse or civil partner.

They get 50% of their spouse or civil partner's protected payment. This is less common as most people don't have an entitlement to more than the new State Pension, though.

Okay, next, I just want to touch briefly on the marriage allowance. Now straight off, I just want to clarify, that is different to the married couple’s allowance, which is only applicable if someone in the marriage was born before 1935. No, no, we're talking about the marriage allowance here.

Okay, so you might be thinking, what relevance does the marriage allowance have to State Pension? In reality, it may not for some of your clients, but for others it will be relevant. Remember, from a consumer duty point of view, we need to look for good outcomes for customers and avoid foreseeable harm, and therefore you need to look at the marriage allowance and see if this is applicable to your clients.

Now, the marriage allowance is available to people who are married or in a civil partnership, so unfortunately, once again, not available to cohabiting couples. It enables the non-taxpayer in the marriage or civil partnership to transfer £1,260 of their personal allowance to a spouse or civil partner, which can reduce that person's tax bill by up to £252 per annum.

Now, one key point, however, is that your spouse or civil partner to whom you're transferring £1,260 of your personal allowance must be a basic rate taxpayer, or in Scotland, paying tax at the starter, basic or intermediate rate. You can apply for this at any time, even once you're into retirement, which is why we're raising it in a State Pension webinar. It used to be applicable to more people in retirement than it perhaps is today, and that's largely due to the personal allowance being frozen, but the level of new State Pension continuing to rise. The full new State Pension is now only slightly below the personal allowance, and in the 27/28 tax year, unless the personal allowance increases, the new State Pension will be above the personal allowance.

So, in that case, anyone receiving the full new State Pension won't be able to make use of the marriage allowance, as they'd be a taxpayer. So, it might be relevant to, married couples where one's staying at home and the other's working, but also for people going into retirement where perhaps one person's going to be a non-taxpayer, the other's going to be a basic rate taxpayer.

So a very simple case study to bring this to life. Here we have Sophia and David. So, imagine Sophia has income from the new State Pension of £10,000, so she's not in receipt of the full new State Pension, and she doesn't have any option to top it up. David has an income from the State Pension and a personal pension totalling £20,070. They both have a personal allowance of £12,570.

So, as you can see on the slide, as a couple, they pay tax of £1,500, all of which is levied on David. But if Sophia claims the marriage allowance and transfers £1,260 of her personal allowance to David, Sophia now has a personal allowance of £11,310, and David gets a tax credit on £1,260 of his taxable income. So, as you can see on the screen, Sophia still doesn't pay any tax, and David will only pay tax of £1,248 rather than £1,500, as we saw on the previous slide, saving £252 per annum in tax.

And therefore, we've provided a good outcome for David, saving him £252 a year, and avoided foreseeable harm by stopping him from having to pay additional tax where he didn't need to. And remember, if applicable, you can backdate these four years, so even more tax savings.

Right, okay, that's all we've got time for today. I'm going to let you have another look at these learning outcomes just now. And of course, the CPD certificate reminder. It could take up to 24 hours after you answer the question, so please be a little bit patient. And of course, the legals because you wouldn't want to miss those. And it really just leaves me to say thank you very much for your time.

I hope you found that useful. Thank you.