Could you boost your State Pension by £55,000?
When the new State Pension was introduced from 6 April 2016, the Government also provided an easement to the normal six-year window which allows individuals to pay Voluntary (Class 2 or Class 3) National Insurance Contributions (NICs) to make up for gaps between tax years April 2006 and April 2016 if you're eligible. However, this easement is coming to an end on 5 April 2023 meaning individuals have a little over eight months to take advantage of this easement.
The headline grabbing figure of £55,000 is based upon the increase in State Pension following backfilling ten qualifying years, increasing an individual’s State Pension by £52.90 per week and paid for an assumed 20 years from State Pension Age (SPA).*
To check if they can top up their pensions, individuals should obtain a State Pension forecast and also check their NICs record, both of which can be done online using their Personal tax account.
Before topping up
However, people considering topping up need to take a range of factors into account. For example:
- Some years can be ‘cheaper’ to top up than others; for example, people who have worked part-year and have paid some NICs may be able to complete that year more cheaply than buying a completely blank year;
- Filling blanks for certain years (particularly those before 2016/17) can sometimes have no impact on your State Pension. This is particularly relevant for people who have already paid in 30 years by April 2016 and who were long-term members of a ‘contracted out’ pension arrangement;
- People who expect to be on benefits in retirement may find that some or all of any improvement in their State Pension may affect the amount of Pension Credit they can receive to the increase in income**;
- People who were self-employed can save money by paying voluntary Class 2 contributions (currently £163.80 per year) rather than Class 3 contributions (£824.20 per year);
- Before paying voluntary NICs, individuals should see if they can claim NICs credits for a particular year. For example, those looking after grandchildren may be able to claim credits transferred from the child’s parent, and this could be a cost-free way of boosting their State Pension.
There are two groups for whom top-ups may be of particular interest:
- Early-retired public servants, or private sector individuals who have been members of a ‘contracted out’ occupational pension scheme; the period of contracting out is likely to reduce their State Pension below the maximum amount, and their early retirement is likely to mean they have ‘gaps’ in their NICs record which can be filled;
- The self-employed, who may have gaps in their NICs record and may be able to go back to any year since 2006/07 to top it up; this group is less likely to be affected by complications around ‘contracting out’.
If you would like to discuss your pensions and retirement plans get in touch with a TPO adviser.
The information in this article is correct as of 26/07/2022.
*£52.90 x 52 weeks = £2,750.80 per year, x 20 years (assumed) = £55,016
**Pension Credit tops up weekly income to £182.60 for individuals, £278.70 for couples. Source: https://www.gov.uk/pension-credit/eligibility