Many people have gaps in their National Insurance record, often due to career breaks or time out to care for children. Until recently it was only possible to pay to top up these gaps up to a maximum of 6 previous years; however, the government is currently allowing top-ups for missing years from the 2006/7 tax year to 2016 and has extended the deadline for this to April 2025.
If you have missing years in your National Insurance contributions, then you might be able to take action by paying Class 3 voluntary National Insurance contributions to potentially boost your state pension entitlement. You may benefit from making voluntary contributions if you are:
- Planning for retirement and looking to fill gaps in your National Insurance record;
- Employed but with low earnings;
- Unemployed and not claiming benefits;
- Self-employed but have not paid contributions due to small profits; or
- Living or working outside of the UK.
The option to pay voluntary contributions should be carefully considered – it is not always the case that making payments will increase your state pension. They also cannot be refunded, so make sure you confirm prior to contributing. Whether you are below or above state pension age, it may be possible for you to top up missing National Insurance credits.
You will usually need at least ten qualifying years on your National Insurance record to get any state pension.
You will be able to claim the new state pension if you are a man born on or after 6 April 1951 or a woman born on or after 6 April 1953. The earliest you will be eligible to receive the new state pension is from state pension age. For those in their 40s to mid-60s the state pension age is currently between ages 66 and 68, depending on when you were born. You can check your state pension age here: https://www.gov.uk/state-pension-age, however the state pension age is now being regularly reviewed and linked to life expectancy.
You will usually need at least ten qualifying years on your National Insurance record to get any state pension. They do not have to be ten qualifying years in a row. The number of qualifying years on your National Insurance record affects how much state pension you will receive. In general, you need 35 full years of paying National Insurance to get the maximum state pension. The full new state pension is currently £203.85 per week or £10,600.20 per year.
If you are aged roughly between 45 and 72, you may have the opportunity to ‘buy back’ any missing National Insurance years from 2006 to 2016.
If you are aged roughly between 45 and 72, you may have the opportunity to ‘buy back’ any missing National Insurance years from 2006 to 2016. The deadline was extended from 5 April to 31 July 2023, and has now been further extended to 5 April 2025 due to overwhelming demand. In addition, the cost of paying voluntary National Insurance contributions will remain frozen until 5 April 2025. Class 3 voluntary contributions currently cost £17.45 per week or £907.40 per year. Topping up a partial year will cost less than £907.40 to make it a full year.
Previously, it was only possible to buy back up to six years of voluntary National Insurance contributions; however, when the new state pension was introduced in 2016, transitional arrangements were put in place to let you plug gaps back to 2006.
Firstly, you need to check whether you are missing any National Insurance contributions since 2006 here: https://www.gov.uk/check-national-insurance-record. If you have years missing, then you should use the state pension forecast here: https://www.gov.uk/check-state-pension to check your current entitlement and how much you are likely to get. You can then check free of charge if you can plug the missing National Insurance credits. There are a range of scenarios that build up National Insurance entitlement automatically, for example (though not limited to): caring for a child in the family, statutory sick pay, employment and support allowance, or jury service.
The potential gains to be made from buying voluntary National Insurance contributions are huge; however, a key factor for those thinking of using this option is whether they will live long enough to benefit: health and potential life expectancy should be taken into consideration.
For example, in the case that someone wanted to top up 10 full years’ worth of contributions, they would have to pay £9,074 (10 x £907.40). The annual boost to their state pension would be £3,026.40, which over a 20-year retirement would equate to just over £60,000, with a breakeven point of roughly 3 years before tax.
Before making voluntary contributions, it is important to take the following into account:
- If you claim Pension Credit, any increase in the state pension would normally reduce your Pension Credit award. This often means that you could be no better off paying voluntary contributions.
- If you die before reaching state pension age, you are not eligible to any state pension.
- If you are in very poor health, or have a short life expectancy, because it normally takes a number of years to break even on your initial payments, you might not receive the benefit of an increased state pension in relation to your payment.
- You might be able to use contributions from your spouse, civil partner, late spouse or civil partner, or former spouse or civil partner, to improve your basic state pension, without the need to pay voluntary contributions.
- A higher state pension may mean you pay more tax.
The state pension is guaranteed by the ‘triple lock’, which means it will not lose value in real terms, and it increases at least in line with inflation. To make the guarantee even more secure, the state pension will increase in line with whichever is highest of three separate measures of inflation; average earnings, prices as measured by the Consumer Price Index (CPI) or 2.5%. Retirement can be for a period of 25 years or more, and over such a length of time, prices can increase dramatically. Therefore, the triple lock ensures your spending power will not diminish over the course of your retirement.
The triple lock ensures your spending power will not diminish over the course of your retirement.
If you are below state pension age, contact the Future Pension Centre (here: https://www.gov.uk/future-pension-centre) to find out if you will benefit from voluntary contributions. If you have reached state pension age, contact the Pension Service (here: https://www.gov.uk/contact-pension-service) to find out if you will benefit from voluntary contributions.
You can speak to our wealth planning team at JM Finn for advice on whether topping up your National Insurance contribution payments could be the right option for you. Please contact your investment manager for further details.
The information provided in this article is of a general nature and is not a substitute for specific advice with regard to your own circumstances. You are recommended to obtain specific advice from a qualified professional before you take any action or refrain from action. All sources and figures quoted are accurate as at the time of publication.
Illustration by Sir Radar Drench
