Can you top up your state pension?

Under the new State Pension, those individuals who have accrued 35 years worth of National Insurance contributions could be entitled to a full State Pension which amounts to £159.55 per week. Furthermore, based on the current triple lock rules, individuals will see this income index linked for the rest of their lives. This will provide a valuable underpin to assist with outgoings through retirement and will complement any other retirement wealth that has been accumulated.

What happens if I have not accrued sufficient National Insurance Contributions?

Individuals may be able to increase their State Pension by purchasing voluntary National Insurance contributions if they have gaps in their National Insurance record.

For men born on or after April 6 1951 and women born on or after April 6 1953, the first step to understand the current position would be to visit HMRC’s State Pension Checker.

This free and easy online system will indicate whether or not individuals will be in a position to accrue sufficient National Insurance contributions through natural future accrual in order to achieve the maximum level of State Pension that could be available.

I do not know whether or not I will accrue sufficient National Insurance contributions in the future

It is important to bear in mind that the online system clearly cannot predict whether or not someone plans to continue working and therefore will not be able to confirm whether an individual will make sufficient future National Insurance contributions in order to achieve a full State Pension.

If an individual currently expects to reach their full State Pension without paying voluntary contributions, but then their plans change and it transpires that insufficient contributions are made, individuals can still pay voluntary contributions as they approach State Pension age, provided that the voluntary contributions are made within certain time limits.

Can I make voluntary National Insurance contributions?

Many individuals will be caught up in a transition period from the old State Pension to the new State Pension which started in 2016. Therefore their 2016 State Pension starting amount may be based on entitlement built up under the old State Pension system. These individuals may be able to top up the basic State Pension of this 2016 starting amount (the part that excludes State Earnings Related Pension Schemes (SERPs) or State Second Pension (S2P) i.e. any additional State Pension benefits), if there is an incomplete record of National Insurance contributions.

The full basic State Pension under the old system is £122.30 a week if 30 years worth of National Insurance contributions have been made. Those with less than 30 qualifying years may be able to pay voluntary Class 3 contributions to fill the incomplete years, although time limits apply. Voluntary contributions may be able to be made covering the tax years 2006/07 onwards. It is crucial to note that individuals have to do this by 5 April 2023 deadline. After 5 April 2023, voluntary contributions can only be made representing the last 6 years, on a rolling 6 year basis.

The reason that the old system may still be relevant is when the 2016 starting amount under the old system is better than the 2016 starting amount under the new system for the individual in question. The rationale behind this is to ensure that these individuals will not be worse off under the new system.

The cost of voluntary Class 3 National Insurance contributions is currently £14.25 per week i.e. £741 per annum. Based on the current basic state pension rates, this £741 will provide an income of £212.16 per annum. This clearly represents great value for money. The cost of previous tax years may be different, normally less.

As discussed above, the full state pension under the new system is £159.55 per week and an individual needs 35 qualifying years worth of National Insurance Contributions to qualify.

If the 2016 starting amount is based on the new system, but the starting amount is less than £159.55 per week, individuals may be able to enhance their income through voluntary Class 3 National Insurance contributions by filling in any gaps from the 2006/07 tax year onwards, but within the time constraints discussed above.

Individuals will also have the opportunity to make Class 3 Voluntary National Insurance contributions which represent the years from 2016/17 onwards.

Summary

Although the State Pension system is very complex, it is quite clear that if there are gaps in National Insurance contributions, making a voluntary contribution definitely needs to be considered, taking into account your individual financial planning requirements, and given that it only takes around four years to recuperate the original cost. More information about paying your voluntary Class3 insurance bill can be found on the HMRC website.