Increasing your state pension by topping up National Insurance contributions could give your retirement finances a lift, but it might not be the best move for everyone. At present, you have the opportunity to fill any gaps in your NI record by voluntarily paying beyond the usual six-year cap, going as far back as the tax year 2006/2007.
This expanded window is open until April 2025, after which it will return to the regular six-year limit. However, Yair Bennett, the founder of BOI Agent, has issued a word of caution to those thinking of topping up.
He said: “If someone has other financial priorities or a shorter retirement horizon, the mathematics may not work out. It’s important to consider tax consequences, alternative retirement income sources, and cost of living adjustments.
“If returns surpass the pension payout, it may be prudent to invest that money elsewhere.” To qualify for the new full state pension, which currently stands at £221.20 weekly, typically 35 years of complete NI contributions are required and 30 years for receiving the basic amount, which is currently £169.50 weekly.
From next April, under the triple lock, payments will rise by 4.1 percent, taking the full new state pension to £230.30 a week and the full basic to £176.45 a week. When buying voluntary NI contributions, the rate is £3.45 weekly (£179.40 annually) for Class 2 contributions and £17.45 weekly (£907.40 annually) for Class 3.
This applies to men born after April 5, 1951, or women born after April 5, 1953. To check for any gaps, you can view your NI record on the Government website, which also offers a forecast tool to estimate potential state pension and ways to increase it.
Mr Bennett highlighted the financial benefits of closing contribution gaps: “Say someone notices a six-year contribution shortfall. They may pay £900 in optional Class 3 contributions per year, totalling £5,400. They may enhance their weekly pension by £30, or £1,560 a year.
“Within four years of retirement, they’ve recouped the initial investment, and each year after is profit. Someone intending to take their pension for 20 years or more could lose tens of thousands of pounds.”
Additionally, Mr. Bennett shared a success story involving a client of his who boosted her pension: “After analysing her records and finding the missing years, a self-employed professional with irregular payments increased her pension by nearly £20 a week. The low upfront expenditure was worth her long-term financial security.”
The upcoming state pension age increases are another key factor, with legislation set to raise the age from 66 to 67 gradually between 2026 and 2028, and later from 67 to 68 between 2044 and 2046.
However, this could be subject to change as there are reports that ministers are mulling over the idea of advancing the shift from 67 to 68. The Government is expected to provide an update on this issue within two years of the current Parliament’s tenure.