Should I Pay to Top Up My State Pension?

By WARREN HADLOW, Hadlow Edwards Wealth Management Ltd

Making a voluntary contribution to your State Pension pot could be an efficient way to put money towards your retirement, but it’s important to consider all the implications. On 6th April, the new full State Pension rose to £203.85 a week – a 10.1% increase. However, just how much you’ll be eligible for when you reach State Pension age will depend on the National Insurance contributions (NICs) you’ve made.

To get the full State Pension, you now need 35 years of NICs. If you’ve got between 10 and 35, you’ll get a pro rata amount, but if you’ve got less than 10, you won’t be eligible for any State Pension.

If you aren’t on track to get the full State Pension, it’s possible to buy top-ups. Those with big gaps can take advantage of the government offer to make voluntary NICs going back 16 years. However, the scheme comes to an end on 31 July 2023.

Normally, you can only make voluntary NICs for the previous six tax years. However, this scheme means it’s possible to make voluntary contributions going back to the 2006/07 tax year, so it’s worth considering for anyone aged 45-70 who might have significant gaps in their National Insurance (NI) records.

Where do I stand?

If you’ve been working and paying NI consistently throughout your career, you should have paid enough to get the full State Pension, but if you haven’t (and weren’t claiming benefits), you might not reach the 35-year threshold you need.

You can find out whether you’re on track by applying for a State Pension forecast on the government website. In addition to telling you how much you’ll get and when, it will highlight any gaps you might have in your NI record.

What happens if I haven’t paid enough National Insurance?

If you do have gaps in your NI record, you can make voluntary contributions. These allow you to increase the State Pension you eventually receive, and for some people they could be an excellent investment.

Currently, Class 3 NICs cost £17.45 per week or £907.40 per year. Each year represents 1/35 of the full State Pension, and one year’s additional top-up alone could boost your weekly income by £5.82 a week or £302.64 a year (based on the 2023/24 State Pension).

However, a person with 10 years of missing contributions would be able to boost their State Pension by £3,026 per year in return for a one-off payment of £9,074, by taking advantage of the government’s offer before it runs out.

It might seem like a no-brainer, but it’s important to think the decision through and discuss it with us, particularly if you’re likely to have a high income as there could be tax implications.

If you would like to learn more about whether you should pay to top up your state pension, please do not hesitate to get in touch.

By Warren Hadlow of Hadlow Edwards Wealth Management Limited hadlow.edwards@sjpp.co.uk Tel: 01978 311 611