Should you top up your National Insurance record before the deadline hits?

The deadline for people to plug National Insurance gaps in their records is closing in, with only two months left for those with gaps going back to 2006 to make voluntary contributions to boost their state pension entitlement.

Anyone with less than 35 qualifying years of National Insurance can pay voluntary National Insurance contributions as a way of boosting their state pension entitlement. The latest figures from HMRC show that 68,673 years of gaps in people’s National Insurance record have been plugged using its online tool, worth around £35 million.

There are just over two months left until the 5 April deadline for people to fill any gaps in their National Insurance record going back to 2006. From 6 April this year people will only be able to make voluntary National Insurance contributions for the previous six tax years.

Paying voluntary National Insurance contributions can be a financially savvy way to boost your state pension entitlement. It costs around £900 to buy a year’s worth of state pension entitlement, worth around £330 per year and protected by the triple-lock. Provided the top-up boosts your state pension entitlement, it will take just a few years for that investment to pay off.

Before making any decision, it is crucial to check this is the right option as not everyone will benefit from paying voluntary National Insurance. For example, if you are relatively young and working, you will likely build up the 35 years of National Insurance contributions you need to get the full state pension naturally. Equally, those who have taken time out of work to care for children or elderly relatives may be able to claim National Insurance credits for free. But if you’ve had other work gaps or have spent time abroad not paying National Insurance, voluntary contributions can be a really sensible investment.

For those considering paying voluntary National Insurance, the starting point should be to check if you have any gaps in your record – you can do this online or by contacting the Department for Work and Pensions over the phone. Once you have identified any gaps and determined that filling the gap will boost your state pension, you can press ahead with paying your voluntary National Insurance and boosting your state pension. It is easiest to do this online, although you can also make your application via post.

Considerations for paying voluntary National Insurance

Most obviously, the younger you are, the more likely you are to naturally build up the 35-year National Insurance record needed to entitle you to the full state pension. In these circumstances, buying extra National Insurance risks being a complete waste of money.

If you have had gaps in employment due to caring for children or elderly relatives, you might be entitled to National Insurance ‘credits’. These credits give you exactly the same entitlement to the state pension as voluntary National Insurance contributions – but at zero cost.

In addition, anyone who previously ‘contracted-out’ of the state pension under the old system (which existed before 6 April 2016) might also be entitled to less than the full state pension – even if they have a 35-year National Insurance record.

Contracting out (which no longer exists) just meant you paid lower National Insurance and in return didn’t receive entitlement to the state second pension (the state pension used to be made up of two parts – the basic part and the state second pension, which was previously called ‘SERPS’).

If you have previously contracted out, a deduction will be made to your state pension entitlement. If you aren’t entitled to the full state pension as a result of being contracted out, you can buy extra National Insurance years to make up the gap.

However, not everyone who was contracted-out will benefit from buying extra National Insurance years. This is quite complicated and will depend on what you’d have been entitled to under the old system.

Income tax considerations

It’s also important to remember that your state pension will count towards your income tax bill. That means that by increasing the value of your state pension, you could also push yourself into a higher income tax bracket.

Where this is the case, the benefit of buying extra state pension years will effectively be lower and so it will take a bit longer to ‘break even’.

In many cases it will still be worthwhile to buy extra National Insurance years, but you should take the time to fully think through the financial implications, ideally with the help of a regulated financial adviser.

Useful resources

Full details of the Future Pension Centre are available here: Contact the Future Pension Centre - GOV.UK (www.gov.uk)

You can check your state pension forecast here: Check your State Pension forecast - GOV.UK (www.gov.uk)

If having consulted the Future Pension Centre you decide you want to pay voluntary National Insurance, details for contacting HMRC are here: National Insurance: general enquiries - GOV.UK (www.gov.uk)