Don’t miss out on the chance to boost your state pension

“Limited time offer” isn’t a phrase you would normally associate with the Department for Work and Pensions. However, that’s exactly what it’s been offering in recent years as part of moves to encourage people to plug gaps in their national insurance (NI) record and boost the state pension they eventually receive.

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After the introduction of the new state pension in April 2016, which saw the number of qualifying years needed to get the full rate increase to 35 years, the government temporarily relaxed the terms for purchasing voluntary national insurance contributions (NICs).

Normally it’s only possible to buy voluntary NICs for the last six years. So, to help people who had been caught out in the transition to the new state pension, it extended this period, enabling people to buy contributions going as far back as 2006-07.

However, on 5 April this year, the offer will finally come to an end. So, if you’ve got any missing years between 2006-07 and 2015-16 inclusive, that you want to fill, you will need to act quickly. From the start of the new tax year it will only be possible to buy contributions for the last six years.

Here’s what you need to know.

Why is my NI record so important?

To qualify for the full state pension – which will pay £230.25 a week from April – you will need to have 35 years of NICs under your belt. If you’ve got less than this (but more than 10), you will get a reduced payment. People with less than 10 years will not get any state pension.

For each year that you have missing, you will lose 1/35 of the full state pension, every year that you claim it. That would mean a loss of £342 in the upcoming tax year alone and losses could easily run into thousands of pounds over the course of a lengthy retirement.

When you’re working, you should pay NI on your earnings. However, even if you have had periods in your life when you haven’t worked, you might not necessarily have any gaps.

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That’s because you should have received NI credits if you were claiming certain benefits during that time, such as child benefit or jobseeker’s allowance. You can find more information about when you get credits here.

Who is most likely to have NI gaps?

There are numerous reasons why you might not have paid NI and have gaps in your record. You might have lived or worked overseas, been out of work for a while or simply not earned enough to contribute.

However, Steve Webb, partner at LCP, highlights a number of circumstances where people are more likely to face gaps.

“One group who should be particularly focused on this deadline is the self-employed, and especially those whose self-employed income has been erratic,” he explains. “Until 5 April, it is possible to fill gaps all the way back to 2006 and to do so at exceptionally low prices; afterwards you can only go back six years, so any older gaps will be a permanent hole in your national insurance record.”

Another key group is those who retired before state pension age and therefore have gaps that they can fill. “Many of these will be people who worked in the public sector and spent time paying into a public-sector workplace pension; a deduction is made from your state pension to reflect years paying in at a reduced (‘contracted out’) rate of NI contributions, so topping up for years since the new state pension started can often help to bring you back up towards the full flat rate.”

How do I work out where I stand?

While you might have committed your NI number to memory, few of us will be up to speed on our contribution history.

You can find out whether you have any gaps by requesting a state pension forecast online. This will also tell you when you can claim your state pension, how much you will likely get and whether you can buy voluntary contributions to increase it.

How much does voluntary NI cost?

How much you need to pay will depend on your circumstances and the year (or years) you need to fill.

The current rate for Class 3 (voluntary NICs) is £17.45 a week or £907.40 for a full year. Class 2 contributions (which may be payable by some self-employed people) cost £3.45 a week.

However, for gaps between 2006 and 5 April 2023, lower rates apply. Class 3 contributions will cost £15.85 a week (£824.20 a year), while Class 2 contributions are £3.15 a week.

Note that you should only buy voluntary NICs to boost your pension if you won’t otherwise achieve the full 35 years of NI contributions. It’s not possible to use them to boost your state pension beyond the full flat rate.

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Should I plug gaps in my NI record?

Voluntary NICs provide a straightforward way of plugging gaps in your NI record – either buying contributions for a full or partial year.

For many people they can be a shrewd investment, especially if they are healthy and go on to enjoy a lengthy retirement.

One year’s extra NI will boost your pension by over £300 a year and will be protected in future years by the triple lock (for as long as it remains).

Assuming an approximate investment of between £800 and £900, it should only take you three to four years (after basic-rate tax) to recoup your initial investment. From there on you are making a profit.

However, before you buy voluntary NICs, it’s important to consider a few things. If you are in bad health, for example, there is a risk you won’t live long enough to recoup your investment.

Similarly, even if you have some gaps in your records, there may not be any cause for panic. If retirement remains a way off, you may still reach the ‘magic’ 35 years in due course.

You should also double check that you aren’t missing any NI credits that you may be entitled to.

Finally, bear in mind income tax. Your increased income will be taxable and, if you pay a higher rate of tax, the payback period will be longer.

How to buy voluntary NI

Last year, the government launched a new service to help people buy voluntary national insurance. It’s part of the state pension forecast service and can be accessed online or via the HMRC app.

The tool lets you choose which years you need to plug and let’s you pay for them securely.

However, it can’t currently be used if you are self-employed, living outside the UK or over state pension age. Those people should contact the Future Pension Centre at the DWP on 0800 731 0175.

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Don’t delay

Although the 5 April deadline remains a little way off, Webb cautions against leaving it to the last minute. “It can be a long time between paying voluntary NI contributions and seeing them appear on your NI record, and even longer before the DWP adjusts your state pension forecast (or pension in payment); because things can go wrong with this process, it is worth acting as quickly as possible so that there is time to sort out any problems before the deadline.”

This is particularly important if you want to talk through your purchase. Webb adds: “It is also likely to be even harder than usual to get through to helplines as we get nearer to the deadline, so if you need to speak to someone to understand your options, you would probably do best to call sooner rather than later.”