Savers are facing a ticking time bomb to boost their state pension by thousands of pounds.
There’s just one month left to make life-changing National Insurance top-ups to increase state pension entitlement – but there’s a simple trick you can use to extend the deadline by as much as eight weeks.
Workers can usually make voluntary NI contributions only for the previous six tax years. But a nifty window to make top-ups as far back as 2006 is open, which means you can add up to 13 years to your record.
The deadline to make these payments was previously in April 2023 but the Government was forced to extend the deadline by two years because phone lines could not cope with the surge in demand.
The Government has now introduced a ‘soft’ extension, where people who cannot get through to the Department for Work and Pensions (DWP) can log a callback request.
If the callback request is done by the deadline via a form on the DWP website – go to secure.dwp.gov.uk/request-a-call-back-to-pay-voluntary-national-insurance-contributions/contact-form –top-ups back to 2006 can still be made after the April 5 deadline.
The DWP says it will normally call back within eight weeks of the request, but bear in mind this could be much sooner.
It’s a useful trick for households who cannot get through on the phone – and also for those who want more time to decide whether these lucrative top-ups are worth it.
So who should be taking advantage of the top-up window – and who should steer well clear?
Will I get the full state pension?
Men born on or after April 6, 1951, and women born on or after April 6, 1953 – in other words, all those who have reached pension age since April 2016 and those retiring this year – can qualify for the new state pension.
The full ‘flat rate’ amount will be hiked to £230.25 a week from April – up from £221.20 – or £11,973 a year.
Retirees need 35 years of NI contributions for this amount. Pensioners with less than ten years of contributions won’t receive any state pension.
Contributions are built up when working or by receiving NI credits. State pension payments will be lower if pensioners haven’t met the NI contribution requirements, so it’s vital to check if you have gaps in your record.
You may have gaps in your NI record because you didn’t earn enough to start paying NI in a particular year, were unemployed but didn’t claim benefits or had a spell working overseas, for example.
Women are particularly likely to have gaps if they took career breaks to raise children, care for family or had a more chequered working history.
How do the top-ups work?
The good news is that those on the new state pension can fill in gaps by making voluntary NI contributions to boost their state pension. You can pay to buy a complete or partial year of contributions (for example, if you didn’t work the full year).
Around 37,000 people have topped up since April, according to HM Revenue & Customs. They have added 68,673 years, worth £35 million, to their NI records. An average online top-up is £1,835.
The largest weekly state pension increase someone received is £113.76. If this retiree receives their state pension at age 66 and lives until 86, they will have boosted their state pension by more than £118,000, according to calculations by former pensions minister Sir Steve Webb.
The final figure will be higher because of triple lock increases each year.
The cost of voluntary contributions varies based on the tax year you are filling. For this current tax year, it costs £907.40 for a year and £17.45 for a week.
This adds just under £329 a year to your state pension before any triple lock hikes. To fill in a tax year before 2020-21 under the current scheme costs £824.20 for a year and £15.85 for a missing week.
These are Class 3 contributions and are typically paid by those employed. Class 2 contribution rates typically paid by the
self-employed are lower but they still get the same pension hike. It’s £3.45 to fill a missing week from this tax year for those paying Class 2 rates, and £179.90 for a year. After the window closes on April 5, the furthest back you will be able to fill gaps will be April 2019.
Should I top up?
Although this lucrative window is rapidly closing, you must carefully consider if voluntary contributions are worth it in your circumstances.
Tom Selby, of stockbroker
AJ Bell, says: ‘This is complicated and requires you to consider several factors, including your age and health. Don’t make a panicked purchase.’
He adds that you probably fall into one of three broad categories:
1.Top-ups likely to be sensible
If you’re approaching state pension age and have gaps in your record that you won’t fill in the normal course of your working life, it is worth considering topping up.
Someone five years short of a full record who won’t be able to fill them by state pension age will not be entitled to the full amount without making voluntary contributions.
If they are historic years, they can fill them in at £824.20 each, totalling £4,121. This could add £32,864 to their pension over a 20-year retirement, according to Sir Steve Webb, now a partner at pension consultants Lane Clark & Peacock.
2. Should consider topping up:
If you’re aged over 40 and have gaps in your record, voluntary NI contributions might be worth considering. Mr Selby says: ‘The older you are and the larger the gaps in your record, the more likely it is paying voluntary NI will be a sensible financial decision.’
Consider your life expectancy because it takes around three years for one year of voluntary contributions to pay off in payment increases.
For instance, if you made voluntary NI contributions for the whole of the 2023-24 tax year, this would cost £907.40 and add just under £329 a year to your state pension. This means that within three years you will have effectively made the £907.40 payment back.
Also, check if you are entitled to free NI credits if you receive carer’s allowance, for example, because this could save you making voluntary contributions.
How you get these NI credits will vary depending on the type of credit. For example, if you are a parent registered for child benefit for a child under 12, you will get Class 3 credits automatically.
If you are a foster carer, however, you will need to apply for these credits. Check your eligibility at gov.uk/national-insurance-credits/eligibility.
3. Probably should not top up:
Younger workers under 40 should generally steer clear of voluntary contributions, says Mr Selby.
They have at least another 28 years of working before reaching state pension age, which is set to increase to 68 by 2046, so are likely to build up their NI record automatically.
For example, if a worker aged 30 had a two-year gap in NI contributions from time spent abroad, it would make little sense to fill them because they are likely to build the needed contributions naturally.
Of course, if you have already met the 35-year NI requirements there’s no benefit to making voluntary contributions, even if your record is patchy because of periods out of work. Everyone’s individual circumstances and record will vary so it is best to speak to a financial adviser.
How to buy extra years
Before topping up, check your NI record to see how much state pension you’re set to receive and if you have any missing contributions. See gov.uk/check-national-insurance-record.
This will also say how much voluntary contributions will cost and how these will boost your state pension.
Call the Future Pension Centre on 0800 731 0175 if you are below state pension age to talk through your options.
If you already receive your state pension, check your bank statements to see what payments you receive or call the Pension Service on 0800 731 0469.
If you decide top-ups are worthwhile, visit gov.uk/pay-voluntary-class-3-national-insurance/pay-online-using-bank-account for Class 3 contributions.
You’ll need your online banking details and an 18-digit reference number. Call HMRC on 0300 200 3500 to get this.
Remember that you will still be able to fill in gaps for the past six years after April 5.
