The state pension top up deadline is approaching: Boost your retirement income by up to £47,000
A government scheme allowing people to effectively ‘fill in’ gaps in their National Insurance record and boost their future state pension income is due to end on 5th April 2023.
You currently need 35 years of National Insurance Contributions (‘NIC’) in order to qualify for the full state pension, which is worth £185.15 a week in 2022/23.
Gaps in your NIC record could mean that when you retire, you will not have enough years of contributions (sometimes called ‘qualifying years’) to get the full State Pension. It could also affect your entitlement to some state benefits even prior to retirement, such as maternity allowance or contribution-based ESA.
Why might I have gaps in my NIC record?
This could happen because you were:
- employed but on a low income.
- unemployed and were not claiming benefits
- self-employed but did not pay contributions because your profits were small
- living or working outside the UK
There are a huge number of people that this is likely to affect. Some of the most common examples include parents who have taken a career break from work to focus on raising their children, those who have stopped work temporarily to care for elderly parents or relatives, and people who have had periods out of work for any other reason (provided you weren’t claiming benefits).
To ensure you get more money in your state pension when you retire, filling in gaps in your national insurance is key. Checking if you have any gaps in your national insurance record only takes a few minutes via your HMRC personal tax account – click here to Check your National Insurance record – GOV.UK (www.gov.uk)
What are voluntary NI contributions?
If you fall into any of the above categories, then it is likely that you could benefit from topping up your NIC record by way of voluntary National Insurance Contributions.
How does the allowance work?
Generally, you can only fill in gaps in your NIC record for up to six years after the year in question. Meaning that in the current tax year, 2016-17 would normally be the oldest year which could be filled in; therefore leaving a permanent gap in your record for any relevant periods of low/non-earnings before that, which could then affect your ability to build up a full state pension.
However, with this concession people are able to go back an additional 10 years and fill in gaps for any tax year from 2006/07 onwards – provided you opt to do so before 5th April 2023.
After 5th April, eligible people will only be able to fill in gaps in the last six years, and any previous gaps will be permanent.
Why is this beneficial?
Voluntary NI contributions are heavily subsidised, these top ups are – for those who can benefit – an investment in your future that you wouldn’t otherwise have.
The full state pension is currently £185.15 per week, and this boost is potentially worth £5.29 per week, or around £275 per year.
What are the costs?
If you are a man born between 6 April 1945 and 5 April 1950, or a woman born between 6 April 1950 and 5 October 1952, you have six years after you reach state pension age to increase your state pension. You’ll pay the current rate of £15.85 per week (or £824.20pa) to top up your NI record with Class 3 Voluntary contributions.
If you are a man born after 5 April 1951, or a woman born after 5 April 1953, you have until 5 April 2023 to pay voluntary Class 2 or Class 3 NI contributions to make up for gaps in your NI record between April 2006 and April 2016.
- The cost of topping up your Class 3 voluntary contributions is £15.85 per week or £824.20pa. Remember, this one-off lump sum payment could add up to 1/35 of the full rate to your eventual state pension.
- If you’re looking to top up your Class 3 voluntary contributions for the previous 2 tax years, you pay the original rate for those tax years. This would be £15.40 per week for gaps in 2021/22, and £15.30 per week for gaps in 2020/21.
- For those able to fill gaps between 2006 and 2016 (i.e. men born after 5 April 1951 and women born after 5 April 1953), the cost will come at the current rate of £15.85 per week (£824.20pa).
Who can benefit from this scheme?
You may want to pay voluntary contributions because:
- you’re close to State Pension age and do not have enough qualifying years to get the full State Pension
- you know you will not be able to get the qualifying years you need to get the full State Pension during your remaining working life
- you’re self-employed, file Self Assessment tax returns and do not have to pay Class 2 contributions because you have low profits
- you live outside the UK, but you want to qualify for some benefits
The scheme unfortunately isn’t open to everyone; however, it is possible to check with the Department of Work and Pensions (Department for Work and Pensions – GOV.UK (www.gov.uk)) if you are eligible, and HMRC’s website also gives more information with regards to eligibility.
It is also important to note that voluntary contributions won’t always increase your state pension, so you’ll need to check if you’ll personally benefit from plugging the gaps. However, if you are eligible and will benefit, then missing out on this opportunity could cost some people thousands of pounds.
If you’re below State Pension age, contact the Future Pension Centre to find out if you’ll benefit from voluntary contributions. If you’ve reached State Pension age, contact the Pension Service to find out if you’ll benefit from voluntary contributions.
Next Steps
This is something you have to apply for yourself and you can do so through the Government website.
- Sign in to your personal tax account, or create one if you haven’t already, and check your eligibility
- Make payment for any gaps online with HMRC once you’ve confirmed eligibility via your personal tax account.
Should you wish to discuss any of the information contained in this article, contact us today on info@exchangeaccountants.com.
