A rule that allows people to fill historic gaps in their National Insurance contributions record to boost their state pension is set to change from 6 April 2023.
You need at least 10 qualifying years of contributions (NICs) in your National Insurance record to receive any state pension, and 35 years to get the full amount.
Former pensions minister Sir Steve Webb said some workers could miss out on thousands of pounds if they fail to pay for missing contributions before the deadline.
Here, we explain how voluntary NICs work, and whether you should consider buying extra years to top-up your state pension eligibility – as it’s not the right choice for everyone.
Workers allowed to ‘buy’ extra years of NICs
Under normal rules, it’s only possible to fill gaps in your NI record for the past six year, with each year’s deadline being on 5 April. You do this by buying voluntary Class 3 National Insurance Contributions (NICs).
This means that you have until 5 April 2023 to fill any gaps from 2016-17.
After the 5 April deadline, the gap becomes permanent, and could affect how much state pension you’re entitled to.
However, the Department for Work and Pensions (DWP) temporarily relaxed this rule back in 2014, allowing some people to fill gaps for any year from 2006-07 onwards.
The rule was changed so those reaching state pension age in the early years of the new state pension, which came into force in April 2016, had an extended opportunity to assess whether they would be able to improve how much they got under the new system.
Under the new state pension you need at least 35 qualifying years of contributions to get the full amount, and at least 10 years’ worth to receive anything at all.
Who is eligible to buy extra years?
The concession only applies to those who come under the new state pension system, which means you reached, or will reach, state pension age after 5 April 2016.
If you’re a man born after 5 April 1951 or a woman born after 5 April 1953, you have until 5 April 2023 to pay voluntary contributions to make up for gaps between April 2006 and April 2016.
You can check your National Insurance record online to see whether you have any gaps.
It’s worth remembering that the younger you are, the more time you’ll have to naturally plug any gaps in your record while you’re still in work.
How much could your state pension be boosted?
Sir Steve Webb from pension firm Lane, Clark and Peacock (LCP) said buying back missing years can be ‘extremely valuable’ in some cases.
He said: ‘For those who can benefit, investing in state pension top-ups can generate a better ‘rate of return’ than almost any other way of using savings.
‘Someone with 10 missing years could pay out a little over £8,000 to fix the gaps, but see a boost of £55,000 in state pension over a typical 20-year retirement.’
The current cost of Voluntary Class 3 NI contributions is £15.85 per week, or £824.20 per year. However, if you are looking to fill gaps that occurred in the past two tax years, you would pay the rate from those years. Voluntary contributions for gaps in 2021-22 cost £15.40 per week; for gaps in 2020-21, the cost is £15.30 per week. It will also be cheaper if you’re only topping up a partial year’s contributions.
Topping up can add up to £275 to your pre-tax state pension per year (1/35 of the full rate of the state pension worth £9,627.80 a year). This means after three years of receiving higher payments, you could get back what you’d paid for the Voluntary Class 3 NICs.
Topping up isn’t always a good idea
There are some situations where paying historic contributions will not boost your state pension payments.
This could include those who are short of a full state pension due to extensive periods of ‘contracting out’.
The government recommends contacting the Future Pension Centre to find out if you’ll benefit from making voluntary contributions if you are below state pension age.
If you’ve already reached state pension age, contact the Pension Service to find out if you’ll benefit from topping up your contributions.
You may also want to seek professional financial advice before you make a decision.
LCP has also prepared a website tool to help you decide if you can boost your state pension this way.
It’s worth noting that you may be able to top-up missing years for free with National Insurance credits, especially the gaps in your NI record were due to illness, looking after children or being unemployed.
How to check your National Insurance record
You may have gaps or part-years in your National Insurance (NI) record for a number of reasons – you may have been employed on low earnings, or unemployed but not claiming benefits. Those who were self-employed or worked abroad may also have gaps in their record.
You can check your National Insurance record on the government website; you can also check your state pension forecast online, where you can see how much state pension you’ll get, when you can get it, and whether there are options to increase your payments.
If you think there are mistakes on your record, you should contact HMRC.
How much is the new state pension worth?
In 2022-23, the full level of the new state pension is worth £185.15 a week, or £9,627.80 a year.
It has been confirmed that the full level of new state pension will rise by 10.1% in 2023-24 to £203.85 a week.
Other ways to boost your state pension
If you can’t top up your pension by making Voluntary ‘Class 3’ NICs, then there are some other ways you might be able to give your pension a boost.
Check if you’re eligible for pension credit
If you’re of state pension age and on a low income, pension credit tops up your payments. It’s made up of two parts:
This can act as a gateway to other benefits, including a free TV licence and electricity bill discounts.
Defer your state pension
If you’re healthy and feel you can work beyond state pension age, deferring could make a huge difference to your pay in retirement.
You can defer or delay your state pension to boost the amount you get when you finally come to claim it.
If you have retirement income from elsewhere, like a generous company pension, deferring your state pension could be a good deal – you could treat it like a really good savings account.