How is topping up my State Pension changing?

Category: Financial Planning&Retirement

Starting from 6 April 2023, the rules for filling in gaps in your National Insurance contributions (NICs) record, which affects the amount of state pension you can receive, will change.

You need at least ten years of NICs to receive any state pension and 35 years to get the full amount. People can fill gaps in their NICs record by paying for extra years of NICs, known as voluntary Class 3 NICs. Normally, you can only fill in gaps from the past six years, with the deadline being 5 April each year. For example, if you want to fill gaps from 2016-17, you have until 5 April 2023. However, the government temporarily relaxed this rule in 2014 and allowed people to fill gaps from 2006-07 onwards. This ends in April.

This change only applies to people who are under the new state pension system, which means those who reach state pension age after 5 April 2016. If you were born after 5 April 1951 (men) or 5 April 1953 (women), you have until 5 April 2023 to pay for voluntary contributions to make up for gaps between 2006 and 2016. You can check your National Insurance record online to see whether you have any gaps.  It’s worth remembering that the younger you are, the more time you’ll have to naturally plug any gaps in your record while you’re still in work.

Is filling in any gaps a good idea?

Sir Steve Webb from pension firm Lane, Clark and Peacock said that buying extra years of NICs can be valuable in some cases, as it can increase your state pension amount by thousands of pounds. For example, paying £8,000 for ten missing years can increase your state pension by £55,000 over a 20-year retirement. The cost of voluntary Class 3 NICs is £15.85 per week, or £824.20 per year, and can add up to £275 to your pre-tax state pension per year.

Topping up your NICs record may only sometimes be a good idea. It may not increase your state pension if you have extended periods of “contracting out” due to being a member of your employer’s pension scheme.

Remember that you may be able to top-up missing years for free with National Insurance credits in some cases, such as if you were ill, taking care of children, or unemployed.

 How much is the full state pension?

The full level of the new state pension in 2022-23 is £185.15 a week, or £9,627.80 a year, and will rise by 10.1% in 2023-24 to £203.85 a week.

What should I do?

The government recommends contacting the Future Pension Centre to find out if you’ll benefit from making voluntary contributions if you are below the state pension age. If you’ve already reached state pension age, contact the Pension Service to find out if you’ll benefit from topping up your contributions. LCP has also prepared a website tool to help you decide if you can boost your state pension this way.

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