The State Pension can make a significant contribution to your retirement lifestyle, providing guaranteed income that will rise each year in line with wider economic circumstances.
Indeed, you may have already heard the announcement from chancellor Jeremy Hunt during his autumn statement on 17 November, confirming that the government would be honouring the “triple lock” this year. That means the State Pension will increase alongside inflation figures from September as planned, seeing the full amount eligible retirees will receive rise by 10.1%.
However, there may be gaps in your National Insurance (NI) record that might mean you are not in line to receive the full amount. In that case, you may want to consider making voluntary National Insurance contributions (NICs) before you retire to fill these gaps.
A key deadline for topping up your record is fast approaching in April 2023. So, find out what this deadline means for you, and whether you should think about voluntarily contributing to your NI record before this expires.
Your National Insurance record determines how much State Pension you are entitled to
How much you receive from the State Pension will be determined by how many qualifying years of NICs you have made.
If you are a man born on or after 6 April 1951 or a woman born on or after 6 April 1953, you will receive the new State Pension. In this case, you will need to have made at least 10 qualifying years of NICs to receive any State Pension at all.
Meanwhile, a record of 35 years or more will make you eligible for the full amount.
There are various reasons you may have gaps in your NI record. For example, you might have:
- Lived or worked outside of the UK
- Been self-employed and not made contributions in years when profits were low
- Had earnings below the NI threshold.
As a result of circumstances like this, you might not have made enough qualifying years of NICs to receive the full State Pension amount.
You can fill gaps in your NI record, but there is a deadline
In the event that you do have gaps in your NI record, you are able to make voluntary NICs to top it up. In doing so, you may then make yourself eligible for the entire State Pension available, boosting how much guaranteed income you will receive each month in retirement.
Typically, you are only able to fill gaps in your NI record from the past six years. But, when the new State Pension was introduced in 2016, the government extended this back to 6 April 2006 for voluntary (Class 2 and 3) NICs.
This extension will end in April 2023, after which you will only be able to make up missed contributions for six years. So, if you have significant gaps in your record, you will need to fill them before this date.
Ensuring you receive the full amount from your State Pension
The State Pension is a valuable sum of money to have coming in each month, so receiving the full amount could help you afford the kind of lifestyle you want in retirement.
As a result, it may be worth checking your record on the government website to see:
- What you have paid up to the current tax year
- If you have gaps that need to be filled
- Whether you can pay voluntary contributions, and how much this will cost you.
Indeed, you may not be entitled to the full State Pension even if you do have an NI record of 35 years or more, as years spent contracted out will reduce your entitlement.
This makes it worth checking your record, even if you think that you are eligible for the full amount.
You may also be able to apply for NI “credits”, allowing you to fill a gap in a certain year without having to pay.
You may be eligible for NI credits for reasons such as if you are/were:
- Being paid Statutory Sick Pay (SSP)
- Caring for a family member who is/ was under 12 years of age and is not your child
- Caring for a sick or disabled person
- On jury service
- On statutory maternity, paternity, or adoption pay.
If any of these apply to you, then you may be able to supplement your record using these credits without having to make NICs.
Other key rules to be aware of
There are a few other key rules to be aware of if you think you may need to top up your NI record.
Certain years may not affect your State Pension entitlement
For example, if you had 30 qualifying years of NICs before 6 April 2016 and you have spent several years contracted out of the Additional State Pension, then tax years before 2016/17 may have no effect on your entitlement.
You can save money if you are self-employed
If you are self-employed, it is possible for you to save money by making Class 2 NICs, rather than Class 3.
You may be able to claim NI credits in certain tax years
Rather than having made NICs, you may be able to claim NI credits transferred from someone else that count towards your record instead.
For example, if you were unable to work because you were caring for a grandchild, you may be able to claim NI credits from the parent of the child.
Get in touch
If you would like any help with your retirement planning, please do get in touch with us at DBL Asset Management.
Email firstname.lastname@example.org or call 01625 529 499 today to find out more.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
All contents are based on our understanding of HMRC legislation, which is subject to change.