In order to be eligible for a full State Pension, you need 35 full qualifying National Insurance (NI) years of contributions. There is an option to pay to plug gaps in NI records dating back to 2006. However, this arrangement now ends on 31 July 2023, after which gaps can only be filled going back six tax years. 

To fill in any missing years of National Insurance Contributions (NIC), you can pay lump sums for the weeks or years you wish to top up. You may be entitled to NI credits for any periods when you weren’t paying NI — for example, if you were living abroad, caring for children or were ill or unemployed. 

Weighing up the benefits

Adding each missing year of NIC costs around £800 (the range is £760 to £825, depending on the missing years). Each additional year can provide around £300 gross of extra annual income. So, depending on an individual’s tax rate, the period to break even will be three to five years after their State Pension has started to be paid. Therefore, anyone doing this is likely to be better off financially by the time they reach the age of 73 if they top up any NIC gaps.

Everyone requires a minimum of ten qualifying years to be eligible for any State Pension entitlement. The maximum new State Pension entitlement is based on 35 qualifying years; anything over 35 years provides no added benefit. For 2023/24 the full State Pension, before tax is £10,600.20.

If you are many years away from the State Pension age, it may be better to fund future years with voluntary contributions each year, rather than looking to fill past years.

Of course, the legislation could change. While the State Pension is available to all at the moment, a future government could introduce means testing or some other way of calculating individual entitlements.

Lump sum contributions can’t be reclaimed leading up to the State Pension Age, so there is a risk that you may not receive any financial benefit if you die before this point or just a few years afterwards – and any additional entitlement isn’t transferable to a surviving partner or spouse.

What to do

Anyone can check their State Pension entitlement, National Insurance record and State Pension age by visiting www.gov.uk/check-state-pension and www.gov.uk/check-nationalinsurance-record or by calling the Future Pension Centre on 0800 731 0175.

Details of eligibility and how to claim are available at www.gov.uk/national-insurance-credits/eligibility

Payments can be made over the phone or online at www.gov.uk/payvoluntary-class-3-national-insurance.

If you have any questions about whether topping up NI contributions makes financial sense, your usual Rathbones contact will be pleased to help.

Staying on top of pensions

The extension of the State Pension top-up deadline to 31 July highlights the importance, as always, of effective pension planning. 

As you’re probably aware, Chancellor Jeremy Hunt’s recent Budget included several important changes, principally the abolition of the Lifetime Allowance (LTA) tax charge for pension savings (previously £1.07m) and an increase in the amount you can pay into your pensions each tax year while receiving tax relief (raised from £40,000 to £60,000). 

These changes may, of course, have all sorts of implications for financial wellbeing and may throw up some complex calculations in terms of pension planning approaching retirement.

For those who already have a large pension pot, the Budget changes are good news because there is no longer an LTA tax charge. Although this is likely to benefit a relatively limited number of people, the changes may be more significant for NHS doctors, a high proportion of whose salaries are paid directly into their pensions. Under the previous rules, they risk being charged for exceeding both the annual and lifetime pension allowances, whereas the new rules should support senior doctors to mitigate this risk.

If you are at the start of your career the annual allowance change may be an opportunity to make more significant pension contributions at an early stage before the £60,000 cap is tapered as your salary rises.

Ultimately though, every individual case is different, and we would urge anyone to take expert advice if they are likely to be affected. 

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