The UK Government has extended the deadline for people to voluntarily plug gaps in their National Insurance (NI) record in order to boost their State Pension entitlement until the end of July. Something which Martin Lewis said could be worth “tens of thousands of pounds to people aged between 45 and 70.
During the latest edition of The Martin Lewis Money Show Live, the financial journalist shared the update with viewers and said that prior to the announcement made on Tuesday, he and former pensions minister Sir Steve Webb - who appeared on the programme last month in a pensions special - had planned to write to the UK Government asking for an extension.
Martin also shared that the price of buying missing NI years has been frozen until July 31, 2023. The consumer champion said: “If you are aged between 45 and 70 you should be looking at this, this is absolutely crucial and could be worth tens of thousands of pounds.”
Brian contacted the award winning TV show with his own success story about buying back missing NI years. In an email, he said: “We have now topped up our NI contributions for a total cost of £4,070, that will give us an extra £1,400 per year State Pension, and that’s at today’s pension rate. “Thank you so much, without you I would never have thought of checking.”
Martin calculated that for Brian’s payment of £4,070 and with the average life expectancy of 20 years after reaching retirement age, which is currently 66, Brian has just made an “inflation-proof” investment return of £28,000.
Martin also shared the relevant segment from the pensions episode on Twitter to make it easier for people to understand.
What does the NI extension mean?
The extension means that people with gaps in their NI records dating back to April 2006 now have more time to decide whether it is worthwhile filling them, to help towards their retirement income.
The UK Government has been allowing people to retrospectively build their April 2006 to April 2016 NI record through voluntary contributions, as part of transitional arrangements introduced alongside the new State Pension.
The deadline for contributions was previously set at April 5, 2023 - but customer phone lines have been busy with people trying to make top-ups - and the UK Government has now confirmed an extension to July 31.
Last week, the UK Government said that if customers were unable to pay voluntary contributions by April 5 2023 for reasons beyond their control, it would consider payments made after the cut-off.
On Tuesday, March 7, a written ministerial statement by Financial Secretary to the Treasury Victoria Atkins said: "HMRC [HM Revenue and Customs] and DWP [Department for Work and Pensions] have experienced a recent surge in customer contact.
"To ensure customers do not miss out, the Government intends to extend the April 5 deadline to pay voluntary NICs [National Insurance Contributions] to July 31 this year.
"This applies to years that would otherwise have been out of time to pay after April 5, up to and including the 2016/17 tax year. All voluntary NICs payments will be accepted at the existing 2022/23 rates until July 31."
Sir Steve Webb, a former Liberal Democrat pensions minister who is now a partner at consultants LCP, said: "This is great news for people thinking of topping up their state pension.
"For most people, paying voluntary NI contributions to deal with a shortfall in their state pension makes excellent financial sense.
"But it is also important to make sure that extra contributions are right in your individual case as sometimes additional contributions may not boost your pension.
"People need time to talk through their options with DWP and then make the correct payment to HMRC and this extension to the deadline should give them time to do this.
"The Government is to be commended for listening to the calls to extend the deadline."
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: "Buying voluntary National Insurance credits are a great way of boosting your state pension but it is vital that you check before handing over any money as you may be able to plug these gaps in a different way - by backdating a benefit claim for instance.
"This extra time means people have the time to make sure they are making the right decision for their circumstances and give more people the opportunity to make a real difference to how much state pension they get."
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 you decide whether it’s worth making up any missed years before they are lost forever. Remember to get independent advice if you're not sure and you have until July 31 to buy the missing years.
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 £9,600 a year for those retiring after 6 April 2016 and will rise to £10,600 from April.
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, 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 Service 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 HM Revenue and Customs (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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