National Insurance  

Deadline nears for state pension NI top-ups

Deadline nears for state pension NI top-ups
 

A government scheme which allows people to fill historic gaps in their national insurance record will come to an end in less than three months.

According to consultants LCP, for those who can benefit, investing in state pension top-ups can generate a better ‘rate of return’ than almost any other way of using savings.  

Someone with 10 missing years could pay out a little over £8,000 to fix the gaps but could see a boost of £55,000 in state pension over a typical 20-year retirement.

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Under normal rules it is only possible to fill gaps in an NI record up to six years after the year in question.  

After that point, the year becomes a permanent gap in a saver's NI record and could affect their ability to build up a full state pension.  

This means that 2016/17 would normally be the oldest year which could be filled in 2022/23.

However, under a special concession and for a limited period people can fill historic gaps in their NI record all the way back to 2006/07.

Until April 5, 2023, people are able to go much further back and fill gaps for any year from 2006/07 onwards - an extra 10 years.  

This concession applies to those who come under the new state pension system, namely those who reached, or will reach, state pension age after April 5, 2016.

LCP partner and former pensions minister Steve Webb said it takes some time to go through the necessary steps, so it is good to warn people well in advance of the cut-off. 

Webb said: “For many people, paying voluntary NI contributions can be great value for money and can help them boost their state pension in a cost-effective way.  

“For people with gaps in their NI record going back more than six years, the window to fill those gaps will soon close.   

“Some people have gaping holes in their NI record and this will be the last chance to fill them.”

In some cases, buying back missing years can be extremely valuable, he explained.

The current cost of voluntary class 3 NI contributions is £15.85 per week or £824.20 per year.  

This one-off lump sum payment can add up to 1/35 of the full rate to a person's eventual state pension. 

As the state pension is currently £185.15 per week, this boost is worth £5.29 per week or around £275 per year.  

LCP explained that someone who gets this boost for at least four years will recover their initial outlay (net of basic rate tax) and everything beyond that would be profit.

In an extreme case, someone who missed the deadline would lose the chance to top up a further 10 missing years of NI contributions (from 2006/07 to 2015/16 inclusive).  

“Although the outlay would be £8,242 (ten lots of £824.20), the annual state pension boost would be around £2,750,” Webb explained.

Someone who was retired for 20 years would get back around £55,000 in total (before tax) for a one off payment of a little over £8,000.