There is a short window until 5 April 2023 to fill in any gaps in your national insurance record for tax years 2006 to 2016. This could boost your state pension by thousands of pounds.
After 5 April 2023, you will only be able to top up any missing national insurance in the previous six tax years (2017-2023).
Currently, 35 years of national insurance contributions are required to receive the full new state pension (for those that retire after 5 April 2016). This may vary depending on your record and age. You can check this by reviewing your pension forecast.
If you find you need to top up your pension for any missing years between 2006 and 2016, you have until 5 April 2023 to do this.
Who it applies to
This can be a complex area and everyone’s position will be slightly different. If you think it might apply to you and you need to top up any missing NI contributions, your first port of call should be the government’s Future Pension Centre (FPC).
This is important because in certain circumstances, individuals can identify and fill gaps in their NI contributions record and see no gain from this at all. Speaking to the FPC, alongside a financial adviser, is the wisest way forward.
Doing the maths
Topping up one full year currently costs £824. If you are plugging a partial year, then it will cost less.
You will need to have sufficient capital to make the purchase, but the benefits can be huge for those who can afford it.
Each year you buy will give you up to £275 of extra state pension each year.
- You find you have six incomplete national insurance years between 2006 and 2016.
- You determine that you will be unlikely to reach your full state pension amount without going back to purchase all those years.
- It will cost you about £4,944 to purchase those missing years (6 x £824).
- You will then have about £1,650 (before tax) extra pension each year after reaching state pension age (6 x £275).
- Your breakeven point, therefore, is about 3 years (£1650 x 3 = £4950).
- After 20 years, you would have received a total pension of about £33,000 in today’s money, which only cost you £5,000 originally.
- That amount will also increase each year with the triple lock guarantee (under current rules).
Note, if you are self-employed then the cost will be different for you.
What should you do next?
For those who have not yet reached state pension age:
Step 1 – Check your state pension forecast. The quickest way to do that is online through your government gateway here: https://www.gov.uk/check-state-pension
Step 2 – Once logged in, you will be able to see whether or not you are on target for the full £185.15 per week and your state pension age. If you need extra years, click ‘view your national insurance record’ at the bottom of the page.
Step 3 – If you do not have full years showing in 2006 to 2016, as they show as ‘incomplete’ then you may wish to consider purchasing these missing years before 5 April 2023.
Step 4 – You will want to then call the Government’s ‘Future Pension Centre’ (FPC) to get a personalised quote to find out if paying for extra national insurance years will increase your state pension entitlement or not. Once you have made your decision and let the FPC know, they can arrange for your state pension to be topped-up.
Those already in receipt of their state pension, or in deferment, who may want to consider topping up their pension need to contact a different department, the Government’s ‘Pension Service’.
Keep your planner informed
The income you receive is a key part of any retirement financial plan, so keeping your financial planner updated on your state pension position is important. Likewise, your financial planner would of course be happy to discuss your decision with you along the way.