Individuals who are approaching retirement age may wish to consider topping up their state pension with voluntary National Insurance contributions.
To qualify for a full state pension of £185.15 per week, you will need to have made 35 years of National Insurance (NI) contributions. If you have made more than 10 years but less than 35 years of NI contributions you will receive a proportion of the state pension, but if you have made contributions for less than 10 years, you will receive nothing.
There are many reasons why you may have missed making NI contributions, including extended work overseas, raising a family, looking after grandchildren, having contracted out, self-employed or simply being ineligible.
For those that have retired and are not receiving a full state pension or for those who are about to retire and do not have enough qualifying years, it is possible, and in some instances advisable, to consider filling in those gaps with voluntary NI contributions.
To ‘purchase’ one year of NI contributions will cost £824.20 (£15.85 x 52 weeks) which would add £275 a year to your state pension, or £5.29 a week. That ‘investment’ will be returned in just three years, making it worthwhile if you live longer than those first three years.
There are differences for those who have been self-employed or working living and working overseas who may have been paying a lower rate of NI, currently £3.15 a week. In this instance, it would cost £163.80 to top up one year of NI contributions to add the £275 to your annual state pension.
If you have retired or reached pension age by 2016 it is possible to top up NI contributions dating back to 2006. The rules will change next year, with NI top ups limited to just six years, so now might be the time to act.
A word of caution on voluntary NI contributions
In many cases making voluntary NI contributions will make good financial sense, but in some instances, it may leave pensioners paying a higher rate or receiving a reduced pension credit. For individuals that are, sadly, unlikely to live longer than the three years would see that investment lost. Individuals should also check NI Credits for any missing years. Not all credits are automatically recorded, for example if out of work because of looking after grandchildren. It is also worth noting that HMRC is taking up to four months to allocate voluntary contributions.
The state pension scheme is complex and individuals are strongly advised to take advice before making or refraining from making voluntary NI contributions.
Check your National Insurance record – https://www.gov.uk/check-national-insurance-record
Check your state pension forecast – https://www.gov.uk/check-state-pension
Everyone has their own individual circumstances which means it is important to seek professional advice. Contact Debbie Wilson via her details below if you have any questions about the contents of this article or would like to arrange a consultation.