If you’re heading towards retirement and have historic holes in your National Insurance (NI) record, time is fast running out to fill them… and take advantage of the generous DWP scheme which allows people to plug payment gaps. By RetireEasy MD Richard Collinson
For those eligible to benefit, investing in State Pension top-ups can generate a better rate of return than most forms of savings – and it’s underwritten by the State. Someone with ten missing years could pay out a little over £8,000 to fix the gaps and receive a boost of £55,000 in state pension payments over a typical twenty-year retirement (at current rates).
Under normal rules it is only possible to fill gaps in your NI record up to six years after the year in question. After that point, the year becomes a permanent gap in your record and could affect your ability to build up a full state pension. This means that 2016/17 would normally be the oldest year which could be filled in during 2022/23.
However, for a limited period – until 5th April 2023 – people are able to go back and fill gaps for any year from 2006/07 onwards.
It’s straightforward to check whether you have gaps – and advisable, as every year of contributions will boost your State Pension for the rest of your life. But you will need to hurry, because the deadline is the end at the end of this current tax year (5 April).
How much can you add to your State Pension?
The current cost of a year’s worth of voluntary Class 3 NI contributions is £824.20, but this one-off lump sum payment can add up to 1/35 of the full rate to your eventual State Pension. At 2022/23 rates, a one-year boost will add around £275 per year to your income (before tax). That means that you should recover your initial outlay in less than four years.
One caveat: anyone thinking of topping up their state pension should check with the Future Pension Centre at DWP before making such contributions. This is because there are some situations in which paying historic contributions would not necessarily help boost your state pension: particularly for those short of a full state pension because of extensive periods of “contracting out”.
Further information is at: https://www.gov.uk/voluntary-national-insurance-contributions/deadlines
So are your retirement plans on track?
If you are on the road to retirement and wondering when (or even if!) you can afford to retire, and how much you will be able to spend each year without your funds running out, you might like to test out the “RetireEasy LifePlan”, available here: www.retireeasy.co.uk
It takes just a few minutes to securely enter your data, and then you can run scenarios on what would happen to your plans if you changed your retirement date, took on a part time job, decided to travel the world or help out a family member – all in the form of easy-to-understand charts. It costs just a few pounds a month, and you can cancel at any time.