HM Revenue and Customs (HMRC) recently disclosed that over 10,000 payments amounting to £12.5 million have been made since last year by individuals using a new digital service to boost their State Pension payments. However, those aiming to maximise their retirement income through the contributory benefit have just two weeks to address any gaps in their National Insurance (NI) records dating back to 2006.
Usually, voluntary contributions can only be made for the past six tax years, and after the April 5 deadline this year, the standard six-tax year limit will apply. In 2023, the government extended the deadline for voluntary NI contributions to April 5, 2025, for those affected by new State Pension transitional arrangements, covering tax years from April 6, 2006, to April 5, 2018.
This extended deadline has provided people with more time to evaluate their options and make their contributions. Men born after April 6, 1951, and women born after April 6, 1953, are eligible to make voluntary NI contributions to increase their New State Pension.
Some savvy savers might be in line for National Insurance credits instead of coughing up for contributions, and HM Revenue & Customs has urged them to check their entitlements. HMRC’s deep dive into online service usage unveiled that more than half— the precise figure standing at 51% — of users decided to top-up a single year of their NI record.
The average payment made was £1,193. Bestinvest by Evelyn Partners’ own personal finance guru Alice Haine underscored just how pivotal National Insurance contributions are when it comes to securing the State Pension. She noted: “People typically need at least 10 qualifying years of NI (national insurance) contributions to receive any state pension at all and at least 35 years to receive the full new State Pension – though they don’t need to be consecutive years.”
Haine did not stop there, highlighting just how dear filling in those vexing pension contribution gaps can be: “Plugging gaps can be quite an expensive process, so it is important to assess whether you actually need to buy back any missing years. This will depend on how many more years you plan to work, and whether you are eligible for NI tax credits, which fill the gaps, such as those who have been sick, were unemployed or took time out to raise a family or care for elderly relations.”
Haine touched on the increased accessibility of managing National Insurance contributions due to recent advancements by the government: “Plugging gaps in your record is relatively straightforward since the Government rolled out its new NI payments services in April last year – a State Pension forecast tool that has been checked by 3.7m since its launch.”
She further highlighted the benefits of the government’s digital offerings: “People simply need to log into their personal tax account or the HMRC app to not only view any payment gaps but also check if they can plug those gaps directly through the Government’s digital channels.”
The process is made user-friendly, as Haine noted: “A short survey assesses the person’s suitability to pay online with those eligible to pay directly given a series of options to plug any gaps depending on when someone wants to stop working.”
But she cautioned on the complexity and potential drawbacks of topping up: “Calculating whether to top up can be confusing though and ultimately there is no point paying for more years than you need because you won’t get that money back.”
To prevent missing out on State Pension entitlements, Haine recommended conducting two critical checks which are simple and can uncover any deficiencies in your State Pension.
First Check: Verify your NI record
Simply visiting GOV.UK can highlight any missing years you might have – you can check here.
Second Check: Review your State Pension forecast
Find out precisely what you’re owed in terms of your State Pension by going to the ‘Check your State Pension forecast’ section on the GOV.UK site—check it out here. This will also reveal your State Pension age – the point at which you can officially retire and start receiving payments.
If these two checks indicate that you are on track for the full, New State Pension, there’s no further action required. However, if there are any missing years, you now have the opportunity to investigate if you can boost your pension for free.
There are three main methods to enhance your State Pension at no cost:.
- Carer’s Credit – this is a free NI credit for those aged 16 to State Pension age who provide unpaid care
- Child Benefit – check for missing NI credit
- Grandparents providing childcare – if a family member looked after a child under-12 at any time since 2011, before they were State Pension age (even if they are now) as parents/guardians were working, then the parent can apply to transfer their child care credit to the family member
Compensate for missing NI years
For those who can afford it, gaps in your National Insurance record can be filled by making voluntary class 3 NI contributions. Buying an additional full year costs around £825 or less, and even partial years can be cheaper, starting from just £16.
For each year purchased, you receive 1/35th of a year’s State Pension – approximately £329. This means you effectively recoup your investment in about three years, making it potentially excellent value.
However, it is vital to confirm whether it is beneficial for you to pay for these credits, so always consult with the DWP before proceeding. For more information on how to fill gaps in your National Insurance record, visit the GOV.UK website here.
Seek advice before deciding
Before making a decision, it is advisable to seek guidance as determining whether to top up can be complex. It is not beneficial to pay for more years than necessary as you will not receive that money back.
The best course of action is to get in touch with the UK Government’s Future Pension Centre on 0800 731 0175 to verify how many years you can buy and if voluntary contributions will boost your State Pension. Those who have already reached the age of retirement should contact the Pension Service on 0800 731 0469.
