THE clock is ticking for thousands of people to give their retirement income a boost – but there’s still time to act.
Thousands of people can beef up their State Pension to the tune of £5,000, but they will need to take action fast or risk missing out on the uplift.
Those claiming the full flat-rate State Pension currently receive £221.20 a week, equal to £11,501 a year.
However, not everyone qualifies for this payout.
You need at least 10 years’ worth of National Insurance (NI) contributions to get anything at all, and 35 years to qualify for the full amount.
People who have taken career breaks – to raise children, for example – can find they have gaps in their NI record, which can reduce the amount of State Pension they can get.
However, you can buy credits to plug these holes, which is usually a financially savvy move.
The cost of buying contributions is currently £824.20 for one year and applies to all years from 2006/07 to 2022/23.
Buying one extra year of contributions would increase your pension pay out by £328.64 per year in retirement.
Therefore, you’d usually make your money back within three years of drawing your pension – or four years if you allow for basic rate income tax.
Over a typical retirement, just one extra year of NI contributions is estimated to be worth at least £5,000 in State Pension.
However, the rules on buying contributions are changing in April next year.
At the moment, you can make backdated contributions for missing years as far back as 2006.
But from April 5 2025, you will only be able to backdate for a maximum of six years.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Taxpayers with any gaps in their state pension record currently have a golden opportunity to plug any shortfalls by backdating their NI contributions – but the clock is ticking as the deadline to take advantage of this one-off concession closes in less than seven months.
“Buying back missed years is a great way to bolster retirement income as the state pension provides a guaranteed monthly for the duration of your retirement with the sum paid subject to an annual cost-of-living bump up.”
How do I buy contributions?
You can check your state pension forecast and state pension age through the government’s Check your State Pension tool online at gov.uk/check-state-pension or through the HMRC app.
People below state retirement age can log in to the service using their personal tax account details – or set one up at gov.uk.
Through this tool, people can also choose which years they would like to fill and pay within the service too.
The cost of buying contributions is £824.20 for the years from 2006/07 to 2022/23. Or £907.40 for the tax year 23/24.
However, the cost is lower if you have already made some partial contributions in a particular year.
Ms Haine said: “Calculating whether to top up can be confusing and ultimately there is no point paying for more years than you need because you won’t get that money back,.
“Calling the Government’s Future Pension Service to double check how many years you can buy and whether voluntary contributions will add to your state pension is key for those considering such a move.”
You can call the Future Pension centre helpline on 0800 731 0175.
Before you buy NI contributions, you should also check if you have claimed all the free ones that you can…
HOW TO CLAIM FREE NI CREDITS
You usually make NI contributions when you’re working, either through your PAYE salary, or through your tax return if you’re self-employed.
But if you’re not working, you can usually claim NI credits to fill your record and boost your state pension eligibility.
If you’re registered to receive child benefit for a child under the age of 12, you will get Class 3 credits automatically.
If your income is above the threshold to receive Child Benefit, it is still important to claim, but just ask that you are not paid the cash.
This way, you still receive the NI credit without having to pay back any money.
Child Benefit is worth just one NI credit, but parents can transfer between themselves and also to other family members providing care.
If you didn’t claim the benefit but did provide care to a child under 12 since 2011, you can fill out a CA9176 form on the government website to claim backdated Class 3 benefits.
If you’re on Universal Credit, you automatically get Class 3 NI credits.
If you receive Jobseeker’s Allowance and you’re in education or working 16 or more hours a week, you should get Class 1 NI credits automatically.
But if you’re unemployed and looking for work and not getting Jobseeker’s allowance, you’ll need to contact your nearest Jobcentre to apply to get the credits.
Anyone who receives Employment and Support Allowance (ESA), or Unemployability Supplement or Allowance will get Class 1 NI credits automatically.
If you’re not on ESA but would be eligible, then you should apply for the benefit so that you can also get the NI credits.
Anyone who gets Carer’s Allowance payments should get Class 1 credits automatically. If you’re in Scotland, you should get these if you qualify for Carer Support Payments.
If you’re receiving Income Support and providing substantial, regular care, you should get Class 3 credits automatically,
If you don’t get benefits but care for one or more sick or disabled people for 20 hours a week, you can apply for Class 3 Carer’s Credits, but you should also check that you’re receiving all the benefits you’re eligible for.
If you didn’t claim benefits at the time you were eligible, you may be able to backdate the NI contribution.
If you’re married to someone in the forces and you’ve been posted overseas since 2010 you can apply for Class 1 credits.
If you were posted overseas between April 1975 and 2010, you can apply for Class Three credits, as long as you reached state pension age on or after April 6, 2016.
If you need to apply for credits, or think you should be receiving them when you’re not, then you need to send a letter to HMRC.
The address to write to is: PT Operations North East England, HM Revenue and Customs, BX9 1AN, United Kingdom.
You’ll need to include your NI number, say which years you’re applying for, and explain why you are eligible to get the credits.
What is National Insurance?
NATIONAL Insurance is a tax on your earnings, or profits if you're self-employed.
These contributions make you eligible for things like the state pension and certain benefits.
You’ll usually pay National Insurance Contributions (NICs) when you’re over the age of 16 and earning a certain amount.
For example, if you earn £1,000 a week, you pay nothing on the first £242.
Earn over that and you pay 10% on the next £725 – so £72.50. Then you pay 2%o on the rest, so £33, which works out as 66p.
For the self-employed rates are slightly different.
You can also get something known as National Insurance in some circumstances when you’re not working, for example when you have kids and claim certain benefits.
NICs are usually taken automatically by your employer and paid to HMRC, so you don’t need to do anything.
You can see how much NICs you pay on your wage slip.
Anyone working for themselves usually has to pay NICs themselves when completing a self-assessment tax return.
