Are you set to get the best State Pension deal? In 2023-24, the full new State Pension is £203.85 per week – or, £10,600.20 per year. Given a recent study found that a retired couple now needs at least £19,900 to cover essential costs, it is worth checking that your State Pension is on track.
The amount that an individual gets from his/her State Pension is heavily dependent on their National Insurance (NI) record. At least 35 “qualifying years” of NI contributions are needed to get the full new State Pension.
This is why it matters that the government has recently extended the deadline for voluntary NI contributions. In short, more people have more time to ensure that their NI record is fully up to date – potentially raising their future retirement income.
Could you be someone who might benefit from the deadline extension? In this article, our Carlisle financial planners explain how voluntary NI contributions work, why the deadline extension matters and the potential implications for retirement planning.
Please contact us for more information or to speak with a financial adviser:
t: 01228 210 137
e: [email protected]
The State Pension and voluntary NI contributions
To get the £203.85 weekly income from the State Pension, first of all, you need to have reached your State Pension age (66 in 2023) and claim the income from the government.
To get anything from the State Pension, you need at least 10 qualifying years on your NI record. Those with 35 qualifying years are likely entitled to the full new State Pension. You can check your NI record on the government’s website.
For many people, the 35 qualifying years are built up naturally over the course of their careers. For instance, employees pay NI through their paycheque, under the PAYE system. Over a 35-year career, therefore, an employee could build up a full NI record.
However, many people run up “gaps” on their NI record, often without realising it. This might be due to periods of being unemployed but not claiming benefits. Or, a self-employed person may not have paid any NI contributions due to small profits.
Without corrective action, these gaps can lead some people to receive a lower State Pension in their future retirement.
The voluntary NI deadline extension
By making voluntary NI contributions, an individual can start to “plug the gaps” on their NI record, helping them work towards a “complete” NI record (of 35 years).
In 2023-24, it can cost up to £824 to make a voluntary NI contribution for a missing year. This can add up to £302.64 each year to your pre-tax State Pension. So, in three years the voluntary NI contribution can start to pay for itself.
Normally, you can only make voluntary NI contributions for the past 6 tax years. So, if you have big gaps in your record from 20 years ago, it would be too late to build them back up.
However, the government has widened the time window – letting taxpayers make voluntary NI contributions up to, and including, 2006-7 (i.e. the past 16 years instead of 6 years).
Should I buy more State Pension years?
Originally, the government had set 31 July 2023 as the end date for the temporary extension for voluntary NI contributions. Now, this has been moved to April 2025 – giving people 2 more years to claim back as far as April 2006.
Paying for voluntary NI contributions is a big decision and is highly dependent on your financial goals and circumstances. It can help to seek financial advice to gain the most clarity, insight and peace of mind about your options.
As a starting point, however, check your NI record and find out whether any “gaps” can be plugged for free by claiming NI credits.
For instance, suppose you took time out of your career to care for a child in your family after April 2006. Did you claim NI credits via Child Benefit? If not, then you may be able to claim now if you meet the criteria.
If you are currently employed, consider whether you will automatically build up 35 qualifying years on your NI record by continuing to work until retirement.
For example, if you have 25 years on your NI record already, then if you expect to keep working for another 10 years you may not need to make any voluntary contributions.
A final consideration is your expected lifespan. For instance, if you are a woman aged 60 right now, then you might qualify for the State Pension at 67. The average life expectancy for this person is 87. So, this individual might expect to receive her State Pension for 20 years.
In this scenario, voluntary NI contributions may be worth it. However, if a particular 67-year-old woman has very poor health and may not live past another three years, the returns become a lot more questionable.
Invitation
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.