Helping our readers protect themselves against a pathetic State Pension is one of our missions here at The Motley Fool. Whether that be by giving tips on how to maximise the size of your pension, or providing investment ideas to help you offset stingy benefits payments.
In the spirit of this work I’d like to draw attention to a recent Freedom of Information (FOI) request put in to HM Revenue and Customs by the good people at Royal London. This showed that there are a whopping 200,000 couples who are losing out on national insurance credits (or NICs). The reason why? They are simply claiming child benefit in the name of the ‘wrong’ parent.
Take full benefit
In order to get the full State Pension, a person has to have exactly three-and-a-half decades of making NICs, and under current Child Benefit rules a parent looking after a child aged under 12 years is entitled to a full credit. This credit only goes to one parent — usually the one claiming the child benefit — and tends to be the lower earner in a couple.
However, that FOI application I mentioned above shows that 200,000 UK couples are losing out on one of these credits, as the higher-earning spouse, i.e. one that is usually in work, is claiming that Child Benefit instead of the one who is on a zero-to-low income.
And as Royal London suggests, this can end up costing couples a pretty penny once they retire. Someone needs to have made 35 years of NICs to claim a full State Pension, meaning that one year of credits can be worth 1/35 of a pension. To put this in monetary terms this amounts to around £250 per year on the pension at retirement, or a chubby £5,000 over a typical 20-year retirement.
Take stocks, too
It’s clear what couples claiming Child Benefit need to do, then, to bump up their NICs. But doing so still isn’t likely to prove the silver bullet to protect you from pensioner poverty as the state struggles to support its-ageing population.
We all owe it to ourselves and our families to make sure our incomes are substantial enough to keep us off the breadline. And that means taking charge of your finances and not leaving it in the hands of the state. If done correctly you won’t have to worry about the size of the State Pension at all.
A recent study published here at the Fool estimated that you might need round £300,000 to live comfortably in retirement. Based on the usual return of up to 10% that stock market investors can expect to make over the long term, someone putting just £250 per month into a product like a Stocks and Shares ISA can expect to make that sort of sum in just 25 years. And right now, with dividends from UK companies running at record levels there’s a terrific opportunity to build yourself a handsome pension pot.
Some of the dividend shares I myself own have truly eye-popping yields right now, to illustrate this point. FTSE 100 stocks DS Smith and Barratt Developments boast forward yields of 4.4% and 7.1% respectively, readings that destroy the sub-2% returns one can expect from putting money into a Cash ISA. FTSE 250 contender Cineworld Group meanwhile has a monster 6.5% prospective dividend yield. And there are many more income heroes I have my eye on right now.
