You normally need to have 35 years’ worth of qualifying National Insurance contributions to get the full new state pension – but Martin Lewis has explained a way to top up your entitlement
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Martin Lewis has explained how workers aged roughly 45 to 70 can turn £800 into £5,500 for their retirement.
The process involves buying extra National Insurance (NI) years to boost your state pension.
The full new state pension – which is claimed by anyone who reached state pension age before April 6, 2016 – is currently worth £185.15 a week.
To get this full amount, you’ll normally need to have 35 years’ worth of qualifying NI contributions. If you have less than 35 years, then you’ll receive less state pension.
Most people build up NI credits during their working years, but if you had to take time out from your job, you may have holes in your record.
At the moment, you can buy years to plug NI gaps back to 2006 – but the rules are changing from April 5, 2023.
How to prepare for retirement
After this date, you’ll only be back to go buy back six years’ worth of NI contributions.
Writing in the latest MoneySavingExpert newsletter, Martin said: “When the transitional arrangements end, the number of extra years purchasable drops, so checking now is key.
“Those at or near state pension age will find it relatively easy to see if topping up may help.”
Have you purchased National Insurance credits to boost your state pension? Let us know: email@example.com
The MSE founder explained how a full voluntary NI year costs roughly £800, but could add up to an extra £275 each year to your state pension.
“If a man who’s reached age 66 lives the typical 19 more years, a woman 21 more years, then for each £800 spent, a man can expect to get £5,300 extra pension, a woman £5,800,” he said.
“Plus the state pension currently (usually) has a triple lock, meaning it rises with the highest of inflation, 2.5% or average earnings (though the average earnings figure is suspended this year).
“Therefore for many, unless you’ve a chronic condition likely to substantially impact life expectancy, if this works for you it’s virtually unbeatable.”
Martin explained how these figures are a rough calculation, as the state pension rules are hugely complex and how much you could miss out on depends on your individual circumstances.
You may also be able to plug your NI gaps for free without purchasing any NI credits – so check this first before you make any payments.
For example, you may be entitled to NI credits if you were claiming statutory sick pay and not earning enough for a qualifying year.
Those who claim benefits such as Jobseeker’s Allowance and Employment and Support Allowance may also qualify for NI credits.
There are more examples of ways you may be eligible for NI credits on the Gov.uk website.
There are also some people who wouldn’t benefit from purchasing extra NI credits.
If you’re likely to have a low income and only rely on state pension, pension credit may top up your income automatically.
You also need to check if the gains from buying extra years may be reduced if it pushes you into the higher 40% tax bracket.
Before you purchase any NI credits, contact the free Future Pension Centre on 0800 731 0175 to check if you’d benefit from plugging any gaps in your NI record.
You can check how much state pension you’re on target to get by using the Gov.uk state pension forecast calculator.
If you’re already at state pension age, you can check your national insurance record.
How to buy voluntary National Insurance contributions
If the Future Pension Centre has confirmed that buying NI credits would benefit you, you’ll need to first contact HMRC to get a reference number.
You will then need to pay for your NI credits through your bank or building society to this HMRC bank account .
NI contributions from the 2006/07 tax year, up to and including 2019/20, will cost you £824.20 for each full year of class 3 NI contributions you buy.
The rate for the 2020/21 tax year is £795.60, and the rate for 2021/22 is £800.80.