With inflation rates remaining high, and annuity rates on the rise but perhaps not representing as much excitement or value, the State Pension could represent greater value to many.
With the implementation of the triple lock, the new State Pension could provide up to £203.85 a week as of the 2023/24 tax year, up from £185.15 in 2022/23. Although this won’t make up all your retirement income, it can act as an essential foundation in later life.
Importantly, you may not be aware that if there are “holes” in your National Insurance record between 2006 and 2016, you may miss out on receiving the full new State Pension.
Luckily, you can plug the gaps by voluntarily paying National Insurance contributions (NICs) for the years you missed.
Previously, the government set the start of the 2023/24 tax year as the deadline for this process. Luckily, this deadline has been extended to 31 July 2023 – leaving you plenty of time to fill in missed NICs if you haven’t already.
So, here is how to pay missed NICs for the decade between 2006 and 2016, in order to maximise your State Pension eligibility before the July 2023 deadline.
Checking your National Insurance record gives you a clear picture of how many voluntary NICs you could pay
The first step to seeing how many NICs you’d need to pay to receive the full new State Pension is to check your National Insurance record.
Luckily, this is an easy process – you can check your State Pension forecast on the government website in a matter of minutes.
When you check your State Pension forecast, you will find how many “qualifying years” you have worked in your life, and how much you are set to receive if you continue working until State Pension Age. You need to have worked for 35 qualifying years to receive the full new State Pension.
Remember: even if you have worked for 35 years or more, some of these may not be “qualifying years”, meaning they don’t increase your eligibility for the State Pension. For example, you don’t qualify for years in which you:
Did not earn enough to pay NICs in the first place
Were unable to work due to ill health or injury
Lived abroad or paid tax in another country.
So, even if you assume you are eligible for the full new State Pension, this may not be the case. It is important to double-check how many qualifying years you have worked before the deadline in July.
You could have unknowingly earned National Insurance credits in previous years
One fact that is often overlooked by those claiming the State Pension is that work is not the only thing that can qualify you for this benefit. National Insurance credits can help boost your State Pension eligibility, and may reduce your voluntary NICs bill in the process.
According to the government website, here are 10 ways you could have (perhaps unknowingly) earned National Insurance credits between 2006 and 2016.
You received Statutory Sick Pay, and so were not earning enough for a qualifying year.
You were eligible for, but not claiming, Employment and Support Allowance.
You were wrongly imprisoned and unable to work, as long as your conviction has now been overturned.
You received maternity, paternity, or adoption pay that did not allow you to earn enough for a qualifying year.
You accompanied a spouse or civil partner overseas as part of their service to the British armed forces.
You cared for a family member under 12, and you were aged between 16 and State Pension Age. This is sometimes referred to as “grandparent credits”.
You cared for an ill, injured, or disabled individual for 20 hours a week or more.
You were called for jury service while in employment.
You were a foster carer after 6 April 2010.
You were unemployed and actively looking for work.
If any of these circumstances applied to you between 2006 and 2016, visit the government website in plenty of time before 31 July 2023.
Filling the gaps in your NICs record now could benefit you hugely in retirement
If your National Insurance record states you already qualify for the full new State Pension, you can sit back and relax.
On the other hand, if you need to make up for missed qualifying years between 2006 and 2016, you can do so by manually paying NICs from those years before the July deadline. After this date, you’ll only be able to voluntarily pay NICs for the previous six tax years – so it’s important to look all the way back to 2006 when viewing your National Insurance record.
Although paying extra NICs could feel expensive today, you could multiply the money you spend when you receive the full new State Pension.
The below table shows how much the two types of NICs would cost you to “buy”, and how much you’d receive each year from the State Pension as a result.
Source: Money Helper
So, based on the 2022/23 rates, if you lived 20 years after you begin receiving the new State Pension, you’d receive more than £5,000 back for spending between £163.80 and £824.
Indeed, according to MoneyWeek, if you paid for a year of State Pension now, you would recover the cost of the additional NICs after four years (net of basic-rate tax). Plus, everything you receive beyond that would be profit – so although back-paying NICs might bring an initial financial burden, you could feel the positive effects of this move when you retire.
Discuss your decision with your financial planner
As you may have realised when reading this article, the process of assessing your State Pension eligibility and voluntarily paying NICs can be complex.
Plus, you might be torn over whether to foot the bill now, even though you could benefit later – particularly during the cost of living crisis.
If you are certain you want to fill the gaps in your National Insurance record, head to the government website to start the process.
On the other hand, if you have questions or concerns about back-paying NICs, it could be wise to discuss your options with your financial planner. Your financial circumstances are unique, and indeed, it may be that buying additional years of NICs isn’t cost-effective for you.
So, speaking with a professional can put your mind at ease. The recent deadline extension from April 2023 to July 2023 means there is time to get your ducks in a row – but it may be prudent to start this process as early as possible.
Get in touch
To review your National Insurance record and discuss voluntary contributions, email firstname.lastname@example.org or call us on 0208 882 2979 for more information.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.