People are being urged to top up their national insurance (NI) contributions to boost their state pension income of up to £2,750 a year as the deadline draws near. The Times reported that many people do not get the full state pension when they reach retirement age, with less than half of people getting the maximum amount in 2020.
With the deadline being set on April 5, people now have just over two months to take advantage of the government scheme that allows them to fill historical gaps up to 10 years in their record. Under normal rules, it is only possible to fill gaps in NI records up to six years after the year in question.
Money Marketing said after that point, the year becomes a permanent gap in an NI record, potentially affecting the ability for someone to build up a full state pension. This means, 2016/17 would normally be the furthest year back which could be filled in 2022/2023.
However, for a limited period, people are able to go much further back and fill gaps for any year from 2006/07 onwards, thanks to the extra 10-year window. However, this concession applies only to those who come under the new state pension system; that is, those who reached (or will reach) state pension age after April 5, 2016.
According to The Times, topping up a week of missed national insurance contributions costs £15.85 — a whole year would cost £824.20. If you are filling in gaps for the previous two tax years, it costs slightly less. Filling in one year of missed contributions could boost your state pension income by up to £275 a year.
However, paying £8,242 to make up a ten-year gap could give you an additional £2,750 a year, according to the pensions consultancy Lane Clark & Peacock (LCP) and this would be worth £55,000 extra over a 20-year retirement, without taking into account inflation.
Steve Webb, a former pensions minister who is now at LCP told The Times: “The cost of national insurance top-ups is subsidised by the government, and as long as you live at least three or four years after retiring you will almost certainly make a profit.”
Research group, Pensions Policy Institute said people will almost always get their national insurance contributions back, with interest, upon retirement. The only exception to this is men in their 40s among the top 10% of earners. Researchers said that they would pay on average £250,000 in national insurance in a lifetime but only get on average £248,000 in state pension payments.
How to check your state pension
Get a state pension forecast from the Government website on how much you are on track to receive and at what age. It should indicate whether there is anything that may be done to boost the amount.
If you were contracted out of a portion of the state pension, your projection will also contain your Contracted Out Pension Equivalent, which is an estimate of the amount of money you would get from the employment or personal pension system that replaced it.
Before you make any payment, call the Future Pensions Service helpline on 0800 731 0175 to make sure that filling in gaps in your national insurance record will boost your pension.
You can also top up your national insurance contributions online, or by cheque or bank transfer. Include your national insurance number as a reference. For help call the national insurance helpline on 0300 200 3500.