Should you “buy” more National Insurance credits now to boost your State Pension?
Posted onThe State Pension is likely to be one of your main sources of income when you retire. Payable from age 66 – although this is set to rise to age 67 in 2028 – it provides a guaranteed monthly income, rising each year in line with the cost of living.
To be eligible for the full new State Pension, you need to have paid enough National Insurance contributions (NICs) during your working life.
Many people may have gaps in their NIC record – for example, from working overseas or periods out of the workforce – and so may not receive the full amount. So, could paying additional NICs now help you to boost your State Pension later?
You need 35 years of NICs to receive the full State Pension
In order to receive the full State Pension, you need to have accumulated 35 years of NICs. You need 10 years of contributions to be eligible for any State Pension.
You normally accumulate a year of “credit” if:
- You were working and you paid NICs
- You received NI credits – for example, if you were unemployed, ill, or a parent or carer
- You were paying voluntary NICs.
Remember that if you do not have 35 years of contributions now, you may still have many years of work in front of you where you can build up your entitlement.
Your first step should be to obtain a State Pension forecast and see what State Pension you will be entitled to when you retire. Head to the government website to do this.
Before you decide to “buy” additional years of State Pension, it’s worth considering some alternatives first.
For example:
- Establish if you can backdate a claim for a benefit you were entitled to that comes with an automatic NI credit.
- Check how many years’ NI you already have and how many more years you will work.
- If you’re a grandparent and you are looking after grandchildren, you can also apply for a “specified adult childcare credit” for free to gain NI credits.
- Register for Child Benefit if you are eligible. Even if you don’t want to receive the payment (to avoid the high income Child Benefit tax charge), registering will ensure you receive the appropriate NI credit.
If you still think there is going to be a shortfall, there are ways to “buy” additional credits to boost your State Pension.
You can make additional NICs now to fill any gaps in your record – potentially boosting your retirement income by a significant amount.
And, until 5 April 2023, you can buy voluntary NI credits to plug any gaps between April 2006 and 2016. After that, you will only be able to plug gaps going back six years.
“Buying” additional credits could boost your later-life income
MoneyWeek shares an example of how making voluntary NICs could benefit you.
In 2022/23, the current cost of voluntary Class 3 NICs is £15.85 a week or £824.20 a year. Making this one-off lump sum payment can add up to 1/35 of the full rate to your eventual State Pension.
As the State Pension is currently £185.15 a week, this boost is worth £5.29 a week or around £275 a year. If you receive the State Pension for more than four years, you will recover your initial outlay (net of basic-rate Income Tax) and then everything beyond that would be profit.
If you were retired for 20 years, you would get back around £55,000 in total (before tax) for a one-off payment of a little over £8,000.
Get in touch
Filling gaps in your NI history can be a great way to boost your State Pension. However, there are a range of issues to consider, so it can be worth speaking to an expert before you make any decisions.
We can help. To discuss if this approach is right for you, please email us at enquiries@blackswanfp.co.uk or call 020 3828 8100 today.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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