While Geoff Exton travelled the world for his job as a power station engineer, he never paid much attention to his future state pension. He had no idea he was racking up a bumper payout that would make most of his contemporaries green with envy.
Now 87 and retired, Geoff says he receives nearly twice the average state pension – at around £23,000 a year.
The standard flat rate pays just £11,973, rising to £12,548 on April 6 thanks to the triple lock, which guarantees annual increases.
So how did Geoff manage to amass this golden level of guaranteed income in retirement?
A few weeks ago, Wealth & Personal Finance asked readers on large pensions to write in with their tips. Among them, we heard from a dozen readers who have all bagged themselves a state pension of £20,000 or more. Here they share the secrets of exactly what they did to achieve this – and we reveal what you can do today to boost your future state pension.
Why there are two systems – and why payouts can vary
The amount you will receive depends on several factors, including when you reached state pension age and how many years of National Insurance (NI) contributions or credits you built during your working life.
The first thing to know is that there are two different types of state pension.
There’s the old state pension, under which you get the ‘basic’ state pension plus earnings-related top-ups, and then there’s the ‘new’ flat rate state pension for younger retirees.
Now 87 and retired, Geoff Exton says he receives nearly twice the average state pension
If you reached state pension age before April 6, 2016, you fall under the old system. This means – provided you have 30 years of NI contributions – you should get the full basic state pension of £176.45 a week, or £9,175 a year.
This ‘basic’ amount is typically topped up by an entitlement to Serps (state earnings-related pension scheme) or state second pension, which you will have accrued automatically and is linked to your earnings.
This extra entitlement was the key to Geoff’s larger pension, as we’ll explain below.
If you reached state pension age on or after April 6, 2016, you will get the new state pension, which is currently £230.25 a week, or £11,973 a year. There are no top-ups for this payment unless you earned rights under the old system. To get the full amount you need 35 qualifying years of NI contributions or credits.
The state pension increases each year under a mechanism known as the triple lock. This guarantees that it rises by the highest of inflation, earnings growth or 2.5 per cent. On April 6, the full rate will increase by 4.8 per cent (in line with average wage growth in the middle of last year), from £11,973 a year to £12,548. Labour has committed to this popular pledge until the end of this Parliament.
So how did Geoff turbocharge his?
The former electrical engineer, a father of six, worked 60-hour weeks or more at hydroelectric power stations for a UK firm in far-flung locations – including Iraq, Jordan and India.
His hard work has paid off handsomely and provided for a comfortable retirement.
He says: ‘I go on holiday with my partner about three times a year – to the Caribbean, Jamaica and Goa. This year I’ve got two holidays booked in Turkey.’
When we asked Geoff how he boosted his state pension to just over £23,000 a year, he says: ‘I suppose I was usually paid double time. If I worked for more than 60 hours a week, I got paid extra.
‘In Iraq in the 1990s I worked at power stations that had been bombed and shut down. We were bringing them back to life.’
We asked former pensions minister Steve Webb, who is now a partner at consultancy LCP, to figure out how Geoff’s state pension was so high.
He says: ‘In the past, it was possible to get a very large state pension through a long working life during which you built up a large earnings-related additional pension on top of your basic pension.
‘From 1978 onwards, anyone on the old state pension could build up entitlement to Serps or second state pension – the earnings-related element of the state pension.
‘Geoff will have accrued this automatically – it is linked to earnings. Those who paid towards this now receive extra pension, on top of their basic payment.’
Some Serps payments are just a few pounds extra. But others could be receiving as much as the full basic pension of £176.45 plus a maximum Serps pension of £222.10 a week.
Geoff is far from alone in earning a big state pension because this used to be common under the old system.
Savvy workers who boosted their pots
There is a second route for older pensioners to build a super-sized state pension.
You don’t receive the state pension automatically when you become eligible – you have to claim it. And you can delay when you start receiving it in exchange for higher payments later on.
However, the terms were much more generous up until April 2016.
Older pensioners could choose between receiving a lump sum plus interest when they started to claim, or a higher state pension for every year of their lives.
An extra 10.4 per cent would be added for each year they deferred. Nowadays, pensioners no longer have the option of taking a lump sum and get just 5.8 per cent added to their payments for each year they delay.
However, experts say this can still be an extremely lucrative option if you are in good health.
Brian Alcock, 76, delayed taking his state pension to boost his annual payments
Brian Alcock, 76, made several crunch decisions that will mean his state pension rises to an annual £20,500 next month.
He earned a good salary as a business administrator in the commercial vehicle components industry for most of his career.
Brian says: ‘This meant I paid full rate NI for most of my 44 years in work prior to my 65th birthday.’
Brian, who is married with one daughter and lives in Leicestershire, delayed taking his state pension, deciding to continue working into his late 60s in a business he had set up with former colleagues.
He says: ‘This meant that my state pension entitlement was increased by 10.4 per cent each year for the two years I delayed taking it.’
How hard work got Mary £24,000 a year
Enjoying her work means Mary Smith, 76, will see her state pension rise to £24,800 next month.
She became eligible to claim the state pension at 60, but continued to work as an executive assistant in London.
She says: ‘My daughter said I didn’t need to work any more, but I enjoyed it.’
Mary, who asked for her name to be changed, finally took her state pension when she was 68, and then opted for higher payments rather than take the lump sum because she would come out ahead if she lived for at least seven years.
Another reader, now 80, says that she deferred her state pension for ten years and boosted her payout to £21,355 today.
Painful loss can be a financial gain
In another case, one reader from Warwickshire says she gets £24,400 because she inherited her late husband’s state pension.
Under the old system, married women often reached retirement age with a poor pension but got an increase if they were widowed.
Under this system, a woman who lost her husband would see her basic state pension boosted – often to the maximum rate – as she would inherit part of her late husband’s contributions. This was done by adding together the husband and wife’s contributions, which typically gave the widow a 100 per cent record.
In addition, if her husband had built up rights under Serps, she would inherit at least 50 per cent of this, and potentially more if he was born before October 1945.
The new system aims to generate good pensions at retirement for both men and women in their own right.
How you can boost your state pension
It is much harder to build up a large state pension since the introduction of the flat rate in 2016.
Steve Webb, who masterminded the state pension overhaul while he was pensions minister, says: ‘The new system, for those retiring since 2016, is based around a flat rate, though people who already had a large additional state pension when the rules changed can still receive it as part of their new state pension.’
This means you should save hard into private work and personal pensions if you want a truly comfortable retirement.
However, there are still ways to boost your state pension.
As we know, if you push back the date at which you take your pension, you can boost it by 5.8 per cent for each year you wait. You can also halt your state pension after you start drawing it if you wish, but you can only do this once.
Putting it off can be beneficial, particularly if you are in good health, or still earning a salary and want to avoid your state pension running up your income tax bill.
Why some retirees are on low state pensions
Millions of people receive less than the headline rate of state pension. There are several reasons why this may be the case:
You may not have contributed enough NI over the years, or you were ‘contracted out’ of the additional state pension during your working life, or you paid the ‘married women’s stamp’.
Those on the married women’s stamp paid less in NI, and qualify for up to 60 per cent of their husband’s basic state pension, worth about £5,760 a year from next month.
You can check your record on the Government website at gov.uk/check-national-insurance-record. You can pay to fill any gaps you do have, but first investigate whether it is worth buying top-ups at gov.uk/check-state-pension.
Webb says: ‘I would encourage everyone to check their National Insurance record regularly, to make sure that all years of employment and self-employment are fully reflected.
‘It is important also to check for credits that should be applied automatically, such as for being at home with children, and to apply for any additional credits such as for being a grandparent looking after grandchildren or for certain groups of carers.’
Do you receive an even larger state pension? Email us at money@mailonsunday.co.uk