There is an opportunity until 5th April 2023 to maximise your state pension should you have missing National Insurance contributions. Filling in the missing gaps in your national insurance record potentially offers one of the best possible returns for your investment.
The state pension is based on making national insurance contributions throughout your working life and you need 35 years of qualifying contributions to obtain the maximum state pension of £185.15 per week or £9,627.80 per annum. To get any state pension you need a minimum of 10 years of contributions to qualify. For every year of contribution, you get 1/35th of the maximum pension, so for example, if you had 20 years of contributions you would receive a state pension of 20/35th of £185.15 or £105.80 per week.
For many people, they will accrue the required 35 years during their working life, but for various reasons, others may fall short. This might be because you were contracted out of the additional state pension; or you were not working perhaps because you retired early, were unemployed or unable to work due to a disability and not claiming certain benefits. It would also include those that took time out from the workplace to study or look after children.
For those who stopped working to look after children, claiming child benefit would have given a national insurance credit that counted towards your state pension. But the introduction of means testing to receive child benefit led many people to not claim, meaning they would have missed the government funding of these contributions. There is an unusual quirk of the rules that means even if you were not eligible for child benefit but still claimed it and then repaid it through the tax system, you would still benefit from the national insurance credit.
‘Topping up’ missing years Deadline: 5th April 2023
To help people who may fall short of the required 35 years of contributions, the government normally allows them to go back and top up any missing years in the last 6 years. However, when the rules around the state pension changed in 2016, the government opened a window for missing contributions to be topped up back to 2006. This window closes on 5th April 2023.
is it worth paying national insurance contributions to fill any missing gaps?
But is it worth paying national insurance contributions to fill any missing gaps? Compared with any other investment opportunity the potential return is attractive. A missing year would cost up to £824.20, based on voluntary class 3 NI contributions. This would then “buy” you an increase in your state pension of £275 per year, which is inflation-linked and would be paid from your state pension age for the rest of your life.
If you were to receive your state pension for 20 years, this would give a return of £5,500, based on today’s state pension, for your “investment” of £824.20 for each year of missing contribution. Of course, if you were to only receive your state pension for a few years or not make it to state pension age then this “investment” would be lost, so this needs to be considered and you should not top up earlier than is necessary for you to reach the maximum of 35 years.
How can I check my national insurance record?
You can check your national insurance record online at https://www.gov.uk/check-national-insurance-record . This will detail how many qualifying years you have already achieved and how many years you will have accrued should you continue to work until the state pension age. If it looks like you will fall short of the maximum state pension by your state pension age, then you should check your record by individual years. This will detail the amount required to top any gaps.
Topping up will not necessarily be the right option for everyone, but for most people, it could be an excellent opportunity to maximise a guaranteed inflation-linked income in retirement. So, spending a few minutes of your time checking your national insurance record could well lead to one of your best investment opportunities. With the deadline rapidly approaching do not leave it too late and miss this opportunity.
The information included within this article is for general information only and is not intended to address the particular requirements of an individual. In particular, the information contained within the article does not constitute any form of advice or recommendation by MWM. The information should not be relied upon by individuals in either making or refraining from making any investment decisions. Where necessary, individuals should seek appropriate professional advice before acting on any of the information contained in this article.