With the news that the Government have extended the deadline for filling any gaps in your National Insurance record, by making voluntary contributions, we wanted to revisit who should do this and the benefits.
Can I, and should I, boost my State Pension?
When the new State Pension was introduced from 6 April 2016, the Government also temporarily extended the normal six-year window which allows you to pay Voluntary (Class 2 or 3) National Insurance Contributions (NICs) to fill in gaps as far back as 6 April 2006.
The extension was initially due to end on 5 April 2023, but due to the volume of applications, this was extended to 31 July 2023. The Government have now issued a further extension to 5 April 2025.
Furthermore, they have announced that all relevant voluntary NIC payments will be accepted at the 2022-23 rates, right up until 5 April 2025.
You will no doubt have seen mention of this in the media over the last 12-18 months, with some articles claiming you can boost your pension by up to £50,000. This is, of course, the best case scenario, for someone topping-up ten years of NICs.
Should I do this?
The first step is to request a State Pension forecast and your National Insurance payment history. Both of which are available to download online, via your Government Gateway login. This will enable you to check that your NIC history is correct and that no eligible years have been mis-recorded.
If your State Pension forecast shows that you are already on track to claim £203.85 per week, this is the maximum or ‘full’ pension for 2023/24. You cannot increase your State Pension above the current ‘full’ pension of £203.85 per week.
The HMRC helpline (0800 731 0175 if you are not yet State Pension age, and 0800 731 0469 if you are already at State Pension age) has also proven to be very useful for several of our clients already, but do be prepared for a long wait to get through! The process has rightly proven very popular.
How much will I get?
This depends on your personal situation. However, in our experience the State Pension top-ups offer a very good, secure return. It’s always worth checking to see if you can increase your pension, and by how much, so that you can make an informed decision.
Things to consider before proceeding:
- You may be able to claim NIC credits
Some people may be able to claim credits, rather than buy them. For example, time spent as a carer, or if you’re on certain benefits. - Not all NIC years need the same amount of money to complete them, some will be cheaper
For example, where you have worked a part year, and paid some NI in that year, the top-up required to complete that year will likely be lower than for a year where you didn’t pay any NIC at all.
This is where the HMRC helpline can come in handy, advising you of how much a top up of a particular year will affect your pension. - Some years won’t count
This is particularly relevant for years prior to 2016 and if you were a member of a ‘Contracted Out’ pension scheme, and already gained 30 years by April 2016. Again, the helpline will be able to tell you if this is the case. - If you’re self-employed, you could pay less to top-up
The current self-employed rate of Voluntary contributions is £163.80 per year, where Class 3 is £824.20 per year. The rates for 2023/24 are higher, but, remember, the Government have confirmed the 2022/23 rates will apply for gap filling. - Not everyone will be better off by topping up
If the additional State Pension from topping-up pushes you into higher rate tax, the benefit from the top-up will be reduced. Your pension will still be higher, but it will take you longer to break even.
If you are expecting to receive certain benefits in retirement, this may be reduced by increasing your State Pension, so you may not end up better off.
Invitation
The best place to start with this particular decision is with the Future Pensions helpline as mentioned above.
If you’d like to discuss this in context to your wider financial planning, get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.
You can call us on 01869 331469
This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).
