I have a one-year shortfall in my National Insurance Contributions (NICs). Should I pay the £500-plus so that I will then receive the higher pension payment, or is it not worth it? I will receive my state pension in November 2018.
Making voluntary NICs can prove good value for those who aren’t heading for the full state pension.
It costs around £740 for a year’s worth of NICs in the 2017/18 tax year – this will give you 1/35 of your state pension, which at current rates works out around £4.70 a week for life. That equates to £244.40 a year, so as long as you live for more than three years post state pension age then it is worth it.
However, you will need to take into account any health issues you may have when deciding whether to make voluntary NICs.
You will also need to look at what year the shortfall occurred. If it is for 2016/17 onwards, then there is no problem. However, if you need to buy for a year before this, then it might not be worth it. That’s because in 2016, when the new system came in, everyone was given a “starting amount” representing the amount of state pension built up.
As you start receiving your pension next year, if this starting amount is more than £159.55, then there is no point paying extra NICs. Any qualifying years you have after 5 April 2016 won’t add more to your state pension.
It’s also worth considering how receiving a higher state pension might affect any other benefits you receive. If you receive means-tested benefits, then getting a higher pension would cut the amount of benefits received.
Finally, I don’t know the circumstances under which you were unable to pay NICs, but there are a series of NI credits available to those who have spent time out of the workforce because they were sick, unable to work or looking after a child. Some of these credits are awarded automatically, but others need to be applied for.
Visit Gov.uk/national-insurance-credits for more details. If you qualify, then you may not need to worry about making a voluntary NIC.
Helen Morrissey is the personal finance specialist at Royal London. Find out who our experts are on the Ask the Experts homepage.