Those considering paying voluntary National Insurance Contributions (NICs) should get their skates on or face a hike in the cost of making up gaps.
Contribution costs are set to rise from 5 April with the new tax year.
Pension provider Royal London is warning those thinking of filling the gaps to make contributions before this date.
For instance, making an annual rate contribution for tax year 2010/11 currently costs £626.60. If you make the contribution after 5 April however, the cost shoots up by £153.40 to £780.
Those who reach pension age after 5 April 2016, who come under the new state pension system can fill gaps in their National Insurance record at these more favourable rates until the end of the tax year.
Steve Webb, Royal London director of policy and former pensions minister, comments: “For many people, topping up their state pension through paying voluntary NICs can produce a good rate of return because the cost of doing so is subsidised by the government.
“But the price of voluntary NICs will rise sharply in April so those considering doing so may wish to act quickly and could save hundreds of pounds by doing so.”
It is however essential to check that filling the gaps will boost your state pension before doing so as complex transitional rules mean that top ups might not actually boost your state pension income.
The table below shows the additional costs that you will incur for top ups after 5 April 2019:
|Contribution year(s)||Weekly Rate||Annual rate if bought by 5 April 2019||Annual rate after 5 April 2019||Additional cost|
Source: Royal London, January 2019
Financial planners are actively encouraging their clients to pay ahead of the end of the tax year.
Jon Treharne, managing director of Shore Financial Planning, says: “Many people will be unaware that the cost of filling historic gaps in their National Insurance record is due to be hiked in April.
“I would encourage anyone thinking of filling such gaps and who has checked that they will increase their pension by doing so, to consider whether they would be best advised to top up before 6th April”.
Why you should top up your NICs
Even paying the higher amount to make up missed years can prove good value for money as each tax year paid represents 1/35th of your entire state pension entitlement.
From the new tax year those with full state pension entitlement will receive around £168.60 per week. This means that each additional year you plug is worth around £4.80 per week for life.
This is equivalent to £250 per year. So, if you pay one extra year of NICs you’ll earn back what you paid in three years.
With the contribution costs rising from 5 April, it makes sense to get the extra contributions paid for now as you’ll get the same amount of state pension for less than after the new tax year.
However, it is important to consider your personal lifestyle and any health issues you might have or foresee, as you might not live long enough to reap the benefit of extra contributions if you are in poor health.
We have reviewed the information in this article and it remains correct. Here are the sources from the government:
However, we have amended the sentence regarding the Future Pension Centre to highlight that due to the complexities of transitions relating to the old and new state pensions it may not be worth topping up for some people.
As we stated in the article, it is best to check with the Future Pension Centre before proceeding.
That's because once you start, you can't stop! Regardless if the "number of qualifying years" you have, you have to pay until you reach State retirement age. I am in a similar position, I have over 40 years of NICs, but had to retire due to ill health. Because I don't claim any "qualifying benefits", my Pension will be reduced unless I pay additional Class 3 (voluntary) NICs.
I took early retirement at age 53 after being made redundant in the knowledge that I had paid 35 years NI contributions expecting full state pension I have just checked what I will receive in 2021 when I officially retire and I was shocked to discover that I will only receive £133 a week and if I contribute from now until 2021 it would increase to a maximum of £148 a week yet everywhere I look it says full pension with 35 years contributions I don’t understand
I am missing 9 years of class 3 contributions. Can I pay them as a single premium. i live overseas but have a UK bank account from which the payments will be made. I will be 60 next birthday and would like to max my state pension due at age 66. Thank you
Is it worth it?
I’m 32 and have lived overseas for 6 years travelling so I have no other secure pension. I have 10yrs full contributions. Should I pay the 6 I have been away?
Consider whether you might work again before state pension age
If you aren't working and the number of years to your state pension age is more than the NI years you lack, then before paying voluntary contributions you need to consider "can I/will I ever work again" - either in employment or self-employment. Because if you work you will have to pay NI until you reach state pension age - and as pointed out above there's no point in accruing more than 35 years.