Act fast to top up your NI
After 5 April, you’ll only be able to fill in gaps covering the past six years
Time is running out to take the opportunity to close the gaps in your National Insurance (NI) record and claim a more generous state pension. A temporary initiative that allows people to fill in holes going all the way back to the 2006-2007 tax year comes to an end on 5 April. After that, you’ll be limited to making good shortfalls only from the past six tax years.
The idea is to maximise the state pension you can look forward to in retirement. You need to have made at least ten years of NI contributions to claim any state pension benefit at all. You need 35 years to claim the full amount, which is £185.15 a week at present.
If you’re not sure about your current position, the government’s online NI tool will tell you where you stand (see gov.uk/check-nationalinsurance-record). You can also get a state pension forecast online (see gov.uk/check-statepension). These services will tell you whether you’re on track for the full amount.
Closing the gaps
If not, you have some decisions to make. At first sight, making additional NI contributions to close gaps in your record could be very valuable. A full year of NI contributions will usually cost you around £825 – less if you made some but not all contributions for the year in question – and earn you about £275 of extra state pension before tax. So you would get your money back after three years of claiming your pension in retirement.
Over time, the numbers really stack up. If you have ten missing years of NI contributions, it will cost you around £8,250 to put that right. If you then live for 20 years in retirement, you’ll receive £55,000 of extra pension income.
However, the decision is not as straightforward as it seems. For one thing, you may be short of NI contributions because you contracted out of the state system via a private pension, either at work or through an individual pension. In which case, you’ll be entitled to receive at least a minimum income from the provider of that plan.
Also, you may be able to top up missing years for free with NI credits. This is likely to be the case if the gaps in your record reflect periods when you were looking after children, unable to work due to illness or when you were unemployed.
Another issue is that you will need to decide which years of missing NI contributions you want to tackle. The year you choose may have a different impact on how much extra state pension you receive, particularly if it’s one prior to 2016-2017, when the state pension in its current form was introduced.
Given these nuances, the government is careful to warn people that making extra NI contributions won’t necessarily boost their state pension entitlement.
High demand
You should therefore contact the Future Pension Centre (see gov.uk/future-pension-centre) before you make any final decisions. It provides advice on your individual circumstances and whether paying has the potential to boost your pension.
However, with time getting short if you need to go back beyond the 2016-2017 tax year, it’s vital to act now. There have been reports that the Future Pension Centre is struggling to cope with demand for advice and information in the run up to the 5 April deadline. If you leave it too late to ask for information, details may not come back in time for you to make an informed choice.