I have retired early but will I be better off if I continue to pay NICs for longer?

Q

“I took early retirement in April 2017 and have recently looked at my state pension forecast, which provides me with a figure based on my national insurance contributions (NICs) to 5 April 2017 but also shows another higher figure if I contribute to 5 April 2019. My official retirement date should be September 2019.

I have more than 35 years’ worth of contributions already, but would I be better off contributing more to cover the period from 2017 to 2019 and if so, how would I do this? The difference between the rate at 2017 and the other figure if I contributed until 5 April 2019 is £9.39 a week.”

From: JM/Glasgow

A

It is possible that your new state pension is less than the full rate of £164.35 per week. There are two main reasons this could happen:

• You do not have enough qualifying years – we know this is not the case for you as you have 35 years’ worth of NICs;
• You have been contracted out of the additional state pension for some of your working life. You may be able to increase your state pension with additional qualifying years. The options vary depending on your circumstances.
• You could carry on working and gain additional qualifying years
• You could receive automatic national insurance credits for future years as a result of being in receipt of certain state benefits, for example carer’s allowance, jobseeker’s allowance, etc.
• You could consider paying Class-3 Voluntary NI contributions (VNICs) but only after checking that you will not reach the full amount through the first two options above.

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VNICs can represent good value compared to other alternatives but there are a number of factors to consider such as affordability, debts, marital status, other potential investments and health. VNICs are non-refundable so you should not rush to pay them if you think you may obtain a qualifying year through another means (for example, carrying on working to state pension age or national insurance credits).

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The price of a higher state pension

If you are approaching retirement and less than the full state pension awaits you, then you could opt to buy national insurance contributions (NICs) to boost it.

By paying for Class-3 Voluntary NI contributions (VNICs) you could boost the amount of money you receive through your state pension. Live for a long time and this could prove to be a valuable investment.

The price of Class-3 VNICs this tax year is £14.65 per week. So, adding a complete year to your national insurance record would cost £761.80.

If you are self-employed or living abroad, you can purchase Class-2 VNICs instead. These cost £2.95 a week this tax year.

You can purchase VNICs for the previous six years, if you have gaps in your record.

To buy VNICs you can either set up a monthly direct debit or make a one-off payment. Find out more at Gov.uk/pay-voluntary-class-3-national-insurance.