Time running out to boost state pension
Anyone planning to top up their state pension by buying back missing National Insurance contributions has less than three weeks to do so before the cost increases by nearly 50%.
Alistair Darling announced in his pre-Budget report last year that, from 6 April 2009, the cost of buying back a year of NI contributions would increase from £420 to £626. At the time, pension experts criticised the chancellor for making it more expensive for people to top-up their state pension.
Currently, the full basic state pension for a single person is £90.70 a week, yet according to insurer Friends Provider, 70% of women and 15% of men do not qualify for this. Last October, the government proposed an amendment to pension legislation, giving people aged between 53 and 60 the right to buy back a further six years of NI contributions, on top of the current six years allowed.
It is estimated this will give them an extra £18 a week from 2010. In addition, from 2010 you will only need 30 years of NI contributions to qualify for a full basic state pension.
However, from this April, buying back NI contributions will increase by 49%. Martin Palmer, head of corporate pensions marketing at Friends Provident, says: "Up to half a million women who took career breaks to raise a family in the 1970s or people who worked abroad for a number of years could be affected by this cost increase.
“If you do not think you will have accrued enough NI contributions to qualify for a full basic state pension by the time you retire you might want to think about acting now to avoid increased expense, disappointment or hardship in the future."
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.