PLANNING FOR RETIREMENT

State pension alert: deadline has been extended to make voluntary national insurance contributions

  • Shunil Roy-Chaudhuri
  • 15 June 2023
  • 8 mins reading time

To qualify for the full state pension of £203.85 a week, you generally need to have made 35 full years of national insurance contributions (NICs) (1).

If you think you may not hit this 35-year target by the time you come to claim your state pension, then the government lets you make voluntary NICs for the years in which you did not make full contributions. This can help you to meet the shortfall. Some people who are already receiving their state pension may also benefit from making voluntary NICs if they are not already receiving the full state pension. Paying these contributions for a single tax year usually costs £824.20 but it could potentially add around £275 a year to your state pension (2).

Currently, you can make voluntary NICs for the tax years from 2006-07 to 2022-23 but not for any years prior to 2006-07 (3).

Following an extension to the previous 31 July 2023 deadline, you now have until 5 April 2025 to make voluntary NICs for the full period from 2006-07 onwards. After 5 April 2025, you will only be able to make voluntary NICs for the six tax years up to 5 April 2025 (4).

So if you think you could benefit from making voluntary NICs for any of these earlier years, then you need to do so by 5 April 2025. The question as to whether you should make such voluntary NICs will depend on your circumstances.

Use online government services

The state pension age is currently 66 for both men and women but will gradually increase from 6 May 2026. If you’re not sure of your state pension age, then the government has an online tool to help you find it out.

To begin with, you need to find out if you’re on track to receive the full state pension when you reach state pension age. Once again the government has a service that can give you this information, but you may need to register before you begin using it.

If you are on track, then there’s no need to pay voluntary NICs. If you are not on track, then you could benefit from checking your national insurance record. Once again, there is a government service for this.

If you’re not on track to receive the full state pension when you reach state pension age, and you can get back on track by paying voluntary NICs for the six tax years up to 5 April 2025, then you may not need do anything now. But you may benefit from paying voluntary NICs for the tax years from 2006-07 if you:

  • Aren’t on track to receive the full state pension when you reach state pension age

  • Can’t get on track by paying voluntary NICs for the six tax years to 5 April 2025.

And if you do want to pay voluntary NICs for the earlier tax years from 2006-07, then you will need to do so by 5 April 2025.

One thing to note. Some people may be on track to receive the full state pension but will need to make future NICs to get there. If they end up not making the required NICs, then they will be able to make voluntary NICs in the future to make up for this. They don’t necessarily need to do so by 5 April 2025.

Costs and benefits

Paying voluntary NICs for a single tax year usually costs £824.20 and adds £5.29 a week to your state pension, or around £275 a year (3). After 10 years, this would amount to around £2,750 and, after 20 years, it would hit around £5,500. And all for a £824 outlay. For most individuals, the financial benefits are obvious.

But there are a few caveats:

  • You may be eligible for national insurance (NI) credits for certain periods, in which case you won’t need to pay voluntary NICs for those periods. People who are eligible could include: carers for children in the family (but who are not the children’s parents); individuals receiving statutory sick pay; and people on jury service. You can find more about eligibility and how to apply for NI credits on the gov.uk website.

  • People under the age of 45 probably won’t benefit from paying for full years of voluntary NICs.

  • Individuals above the age 45, but a long way from state pension age, may end up filling any years of missed NI contributions in the course of their working lives. So they may not benefit from making voluntary NICs.

  • You may not benefit from voluntary NICs if you were contracted out of the additional state pension before 2016 (5).

  • People who were self-employed during the period for which they wish to claim voluntary NICs may pay far less than people who were employed, as they pay a different class of national insurance (3).

  • Men born before 6 April 1951 and women born before 6 April 1953 are dealt with under the ‘old’ state pension regime and voluntary NICs don’t apply to them (1).

This article outlines the potential benefits of making voluntary NICs. But there is no ‘one size fits all’ approach here and, in our view, you would be well advised to obtain bespoke information from the Future Pension Centre or the Pension Service before buying missed years of NICs. These services can confirm whether or not paying voluntary NICs would lead to an increase in your state pension.

Finally, if you want to understand the role a full state pension could potentially play in your retirement planning as a whole, then you may benefit from speaking with a financial adviser. At Schroders Personal Wealth, one of our key principles is to regularly review your financial circumstances.

Sources:

(1) www.gov.uk, ‘The new State Pension’, 31 May 2023.

(2) The Guardian, ‘UK state pensions: later deadline for NI top-ups that can mean £55,000 extra’, 11 March 2023.

(3) www.gov.uk, ‘Voluntary National Insurance’, 31 May 2023.

(4) www.gov.uk, ‘Deadline for voluntary National Insurance contributions extended to April 2025’, 12 June 2023.

(5) www.moneyhelper.org.uk, ‘Voluntary National Insurance contributions and the State Pension’, 31 May 2023.

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The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.

In preparing this article we may have used third party sources which we believe to be true and accurate as at the date of writing. However, we can give no assurances or warranty regarding the accuracy, currency or applicability of any of the content in relation to specific situations and particular circumstances.

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