Martin Lewis has issued an urgent warning to anyone planning to buy missing National Insurance years to plug gaps in their State Pension after HM Revenue and Customs (HMRC) announced earlier this week that taxpayers now have until April 5, 2025 to purchase them - at the frozen payment level.
Extending the voluntary National Insurance contributions deadline until 2025 means that people have more time to properly consider whether paying voluntary contributions is right for them and ensures no-one need miss out on the possibility of boosting their State Pension entitlements. The consumer champion hosted a special edition of his Money Show Live on Wednesday, devoting most of the hour to State Pension payments and how to boost them.
But he urged those who have checked their State Pension forecast and identified gap years not to part with any money until they have contacted the Future Pension Centre for bespoke, one-on-one advice first - as it may not be worth it.
To get the full New State Pension in retirement, you need around 35 years’ worth of NI contributions, but this may be more if you were opted out, and to receive any payment from it at all, you need at least 10 years.
The full New State Pension is paid to those with the maximum amount of National Insurance contributions, you can check how much you are due to receive on GOV.UK here using the State Pension forecast tool.
The forecasting tool will also indicate whether you have any missing years - if you have none, and due the full payment you don’t need to do anything. But if you have missing years and want to get your State Pension payments to the maximum amount, you may need to buy National Insurance years.
For the 2023/24 financial year the full New State Pension is worth £203.85 per week. However, Martin warned viewers: “Do not do anything. Do not apply. Do not pay any money.
“I’m encouraging you to act, this is a clarion call for action to the nation, but it’s not a clarion call to do without checking.”
The founder of MoneySavingExpert.com then outlined a few simple steps everyone should follow.
These are:
- Call the Future Pension Centre for one-on-one advice. This offers bespoke advice on your National Insurance record and will explain the process of boosting State Pension payments and if it’s right for you.
- If it’s pre-2006 years, you can’t buy them.
- If you’re already at State Pension age, you need to call the Pension Service instead on 0800 731 0469.
However, he also warned that even if it’s adding up, there can be issues because it might stop your entitlement to Pension Credit or the returns might not be as good because it puts you in a higher tax bracket.
He said: “In very general terms, for most people if the Future Pension Centre said it’s worthwhile for you, then it’s worthwhile for you.
“But then after the jammed up phone lines, if it is right for you, you then have to call, you can’t do it online, HMRC to get an 18-digit reference code which you need so that you pay the money into the right account - and that can be very busy too.”
Martin spoke to Pensions Minister Laura Trott MBE about the issues with the phone lines and she explained that the extension to the deadline should ensure that everyone can get through.
Ms Trott also said the DWP is working to get an online system in place that would reduce the call volume to the Future Pension Centre, allowing people to make the enquiries online. No timeline could be given, but she hoped it would be up and running by the end of this year.
Who might benefit from buying National Insurance years?
People who are planning for their retirement could benefit from the opportunity to complete gaps in their National Insurance record.
Other people who may benefit include those who may have been:
- employed but with low earnings
- unemployed and not claiming benefits
- self-employed who did not pay contributions because of small profits
- living or working outside of the UK
Contact the Future Pension Centre on 0800 731 0175 to double check how many years you can buy and whether voluntary contributions will add to your State Pension. Those who have already reached retirement age must contact the Pension Service on 0800 731 0469.
Step-by-step guide to boosting State Pension payments
Here is a five-step guide for men born after April 5, 1951, and women born after 5 April 1953, to help them decide whether it’s worth making up any missed years before they are lost forever.
Step 1: Check your State Pension record
There are several reasons for having a gap in your NI record - from a career break or taking time out to raise a family, to caring for elderly relations, living and working abroad, earning a low income or being self-employed and not paying contributions, again because of a low income.
The danger of gaps is that you don’t accrue enough qualifying years to receive a full State Pension. Britons typically need at least 10 years of NI contributions to receive anything at all and at least 35 years to receive the maximum amount, which currently stands at £10,600.
It does not need to be 35 consecutive years, but you must have hit that target over the course of your working life to receive the full entitlement.
If you are not at State Pension age, simply check your NI contribution record by logging onto the State Pension forecast calculator, which you can access through your Government Gateway here.
You will receive a State Pension summary outlining what year you are entitled to receive a State Pension with a guide on the amount you will receive weekly, monthly and per year (without factoring in inflation) according to your current and projected contribution level.
The summary also outlines how much you would receive if you continued to contribute and what steps you need to take to improve the forecast if there are any shortfalls.
For those who are already at State Pension age, they can simply check their National Insurance record for any incomplete years since 2006.
Step 2: Assess whether filling any NI gaps makes sense
Your State Pension Summary will clearly state how many years of contributions you already have, how many you have left to contribute before you retire and the number of years in which you did not contribute enough.
These will be marked as ‘Year is not full’ with guidance on how much you need to pay in voluntary contributions for each year by April 5.
Whether you need to pay up depends on factors such as how many more years you plan to work. Those aged 45 and over who are close to retirement age and won’t have enough time to achieve 35 qualifying years to receive the full New Sate Pension may be more inclined to top up, while someone close to retirement and in poor health might not feel it is worth it.
For younger people, it may not be worth the expense of filling the gaps as they will hit the 35-year contribution target anyway over the course of their life through work or NI credits. For them, it would be taking a real risk to buy now unless they are sure they won't make them up later, for example, because they live overseas.
Which years you have missed is also key:
- If you have gaps between the 2006/07 and the 2016/2017 tax years, these will no longer be available to buy back after midnight on April 5, 2025, so prioritise them first. After that the number of extra years that can be filled drops down to the last six tax years, which gives you more time to plug missed years between April 2017 and today.
- Ultimately, any potential gain from buying voluntary NI contributions will be wiped out if your health is poor and you are unlikely to live long enough to benefit - with the breakeven point for buying back one year to make financial sense three years after you start claiming your State Pension.
There are also other complexities to consider:
- If you are a higher earner, it might not be worth topping up your NI record as it could tip you into a higher tax bracket when you receive your State Pension income taking you longer to break even on voluntary top ups.
Step 3: Get bespoke advice before making a decision
Calculating whether to top up can be confusing and ultimately there is no point paying for more years than you need because you won’t get that money back.
The best solution is to call the UK Government’s Future Pension Centre on 0800 731 0175 to double check how many years you can buy and whether voluntary contributions will add to your State Pension. Those who have already reached retirement age must contact the Pension Service on 0800 731 0469.
What you might find when you chat to a government pension expert is that you have more years built up than you realise as you can also build up NI years for free by acquiring tax credits.
Scenarios that can potentially earn NI credits include:
- Being a parent or guardian registered for child benefit for a child under 12
- Being on Statutory Sick Pay
- Looking for work
- Fostering a child or caring for a sick or disabled person
- Being on jury service
- Being on maternity, paternity or adoption pay
- Being wrongly imprisoned
While there are certain stipulations for each scenario, NI credits can often be automatically applied, so it is always wise to put in a manual claim if they are not on your record. Your advisor can chat through this with you and offer guidance for your unique situation and whether buying a missing year will actually give your eventual state pension a bump up.
Step 4: Calculate the cost of topping up
For most people the cost to make up a full year by April 5 is:
- £824.20 for gaps between 2006/07 to 2019/20
- £795.60 for gaps between 2020/21
- £800.80 for gaps between 2021/22
This rate of NI contribution is known as Class 3.
However, people pay different rates depending on their situation. While those in full employment pay Class 1 NI contributions which are based on earnings and automatically deducted by their employer, the self-employed pay Class 2 and 4 based on their taxable profits and those living abroad pay Class 2.
Class 2 is considerably cheaper at about £160 for one year than Class 3, so when you consider that one qualifying year of NI adds about £275 a year or £5.29 a week to your State Pension for the rest of your life - it's easy to see the value of buying back those missed years.
For someone who was living abroad during their missed year, they need to download and complete HMRC CF83 form and send it to the address on the form.
To qualify for Class 2 NI contributions, you will need to prove you lived in the UK for at least three years in a row or paid NI contributions for at least three years before you left the UK and give the names and addresses of the employers you worked for during your time overseas.
Meanwhile, for those who have retired abroad, they must pay Class 3 NI rates for any missed years - find out more about this on GOV.UK here.
Step 5: Making the payment
Once you have decided how many years to top up and which ones exactly, contact HMRC to find out the cost and how to get the 18-digit reference number you need to actually make a payment and ensure the sum is recorded on your NI record.
This number can be given to you over the phone or sent by post but allow at least two weeks for this to come through by mail.
Once you have the 18-digit number, paying for the missed years can be done by online bank transfer, from a bank at your bank or building society or by cheque to HMRC.
Full details on plugging gaps in your NI record can be found on GOV.UK here.
To keep up to date with the latest State Pension news, join our Money Saving Scotland Facebook page here, follow us on Twitter @Record_Money, or subscribe to our newsletter which goes out Monday to Friday - sign up here.
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