For most people, securing the highest amount of state pension possible will be a major priority to ensure a comfortable retirement. However, some individuals have gaps in their National Insurance record which could mean they fall short of the goal.
Currently, some 35 qualifying years of NI contributions are usually needed to secure the full new state pension, although some may get less if they were contracted out before April 6, 2016.
Usually, Britons can fix National Insurance gaps from the previous six years in efforts to boost their state pension – but there is a limited time offer available.
Until April 5, a transitional offer is in place to allow people to fill gaps all the way back to April 2006 – but the deadline must be met.
This week, the DWP confirmed it would consider applications after the deadline on a “case by case basis”, and thus urged people to take action as soon as possible.
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Tom Selby, head of retirement policy at AJ Bell, agreed, and said: “Brits face a race against time to take advantage of transitional measures and boost the value of their state pension – potentially by thousands of pounds.
“This time-sensitive opportunity exists as a result of state pension reforms introduced in 2016. However, those transitional arrangements come to an end in little over a month’s time on April 5 this year.
“Anyone who has worked abroad, earned a salary below the NI threshold or had gaps in employment could have gaps in their NI record. In some, but not all, cases, plugging these gaps could boost your state pension income by thousands of pounds.”
The expert acknowledged there may be some level of complexity involved for those looking to boost their entitlement, but doing so could be “an extremely savvy move financially”.
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He explained: “You usually need to pay voluntary ‘Class 3’ NI contributions to top up your state pension entitlement. It costs £15.85 to buy one week’s worth of Class 3 NI, or £824.20 per year.
“Based on someone increasing their entitlement to the ‘new’ state pension (worth £185.15 per week in 2022/23), that could result in an income boost of £5.29 per week or £275.08 per year.”
As a result, people could secure a £275 annual income boost for just £824.
In addition, that income will also be protected by the triple lock mechanism, which sees the sum rise each year by whichever is the highest of 2.5 percent, inflation or average earnings.
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From April 2023, the state pension is set to rise by 10.1 percent in line with September 2022’s CPI inflation.
Mr Selby continued: “Broadly speaking, anyone who increases their state pension on these terms will need to live three to four years, in order to be in ‘profit’ from the deal.
“Given average life expectancy at state pension age is around nine years for men and 11 years for women – with a decent chance of living into your 90s – those in good health who can boost their state pension could benefit handsomely by doing so.”
However, Britons need to be careful before making a decision on voluntary National Insurance contributions.
This is because not everyone will benefit from buying additional NI years, especially if they were contracted out in the past.
As a result, it is worth contacting the Future Pension Centre to find out if such an action would be beneficial.
Finally, Mr Selby urged people to consider the tax implications of a boost to the state pension.
He said: “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 NI years but you should take the time to fully think through the financial implications, ideally with the help of a regulated financial adviser.”
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