The relaxation of top-up rules for state pensions is coming to an end soon. But what does this mean – and what should you do before the deadline?
- How do you build up a state pension?
- What is the state pension top-up deadline?
- Why might you want to top up your state pension?
- How else can I build up state pension credits?
- Are there any catches to receiving a full state pension?
- How do I check my record and make additional contributions?
Every year in which you pay National Insurance (NI) above a minimum level counts as a “qualifying year” towards your future state pension.
(There are a few other ways in which you can earn these credits, too – more on that a little later.)
The more of these credits you build up, the more valuable your state pension will be. The maximum amount of qualifying years you can have is 35 – once you’ve achieved this, you may be eligible for a full state pension on retirement.
Normally, you can backdate your credits by up to six years. So, if you didn’t pay NI at any point in the past six years (or not enough for it to be considered a ‘qualifying year’), you can make a one-off top-up payment and effectively “buy” a qualifying year retrospectively.
However, the rules were relaxed a few years ago by the government when it put up the state pension age. This means that rather than being able to buy backdated credits for just the past six years, you can plug any gaps in your NI record to as far back as 2006.
However, this relaxation of the rules lasts only until April 2023, at which point they’ll revert to the previous system of allowing top-ups to the previous six years only.
So if you are a man born after the 5th April 1951, or a woman born after 5th April 1953, and if you want to plug any holes in your NI record dating back to 2006, you have a little over six months left before that extended window closes.
If you were unemployed at any point since 2006, or if you didn’t earn enough to pay sufficient NI contributions in any year since then you might find that your NI record has some gaps in it.
Having the odd gap sometimes doesn’t matter – but remember that you need to have accumulated at least 35 qualifying years by the time you retire in order to get the full state pension.
It currently costs about £825 to buy an additional year of Class 3 NI contributions, and this would give you an extra £275 a year in pension income at today’s rates. That means you’ll have got your money back after three years of taking your pension.
This is just a guide, though, and you’ll need to make a judgment based on your own personal situation.
If you have already built up 35 qualifying years, or if you’re on track to have done so by the time you retire, you might decide it’s not worth voluntarily buying any additional years.
You can check your state-pension forecast by visiting the government’s website.
Even if there are some years when you haven’t paid sufficient NI, you might be able to earn credits in other ways.
These include if you were receiving benefits such as statutory sick pay, child benefit for children under 12, employment and support allowance or jobseeker’s allowance; if you were caring for a member of your family or a disabled person; if you’re a spouse of a serving member of the Armed Forces; if you were on a government-approved training course; or if you were on statutory maternity, paternity or adoption pay.
Sometimes, yes. For example, if you receive pension credit as a benefit, a higher state pension might cut your pension-credit income. So in this case it may not be worthwhile making voluntary contributions.
If you have a short life expectancy, you might find that any money you pay now is not matched by future pension payments you receive.
A higher state pension can also see your tax liabilities rise.
Although buying extra qualifying years makes sense for a lot of people, you need to decide if it’s suitable for your circumstances.
If you’re a man born after 5th April 1951, or a woman born after 5th April 1953, and you haven’t yet reached retirement age, call the Future Pension Centre on 0800 731 0175.
If you are already at retirement age (even if you’ve deferred taking your state pension), call the Pension Service on 0800 731 0469
Both these government agencies can tell you whether topping up your qualifying years will lead to you being better off.
What can we do to help?
As part of our overall pensions advice service, we can explain what your options are and give you advice on what action – if any – you should consider.
However, bear in mind that if you want to go ahead with any top-ups, you’ll have to take action yourself – we aren’t able to carry out the administration of your state pension in the way we can with a personal pension.
Please note, the information in this article is based on legislation at the time of writing (August 2022).