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Wednesday, 14 October 2015

FILL THAT GAP - reach pension age before 6 April 2016

These rules apply to men born before 6 April 1951 and women born before 6 April 1953. There are different rules for younger people

You need 30 years of National Insurance contributions to get a full state pension. If you have fewer than 30 years National Insurance contributions you will get a reduced pension. So if you have 20 years you will get 2/3rds of a full pension. 

It may be possible to pay some extra contributions now to fill that gap. They are called voluntary Class 3 National Insurance contributions. But the rules about which gaps you can fill are complex and can seem unfair.

Contributions at work
You will have got contributions by being in work and paying full Class 1 contributions. You may not even have noticed as they are just deducted from you pay. If you earned very little then no NI contributions would have been paid. For a narrow band of earnings above very little but below where you actually started to pay them then you would have been credited with them. 

Reduced rate contributions paid by some married women do not count. If you have gaps caused by paying those contributions you cannot fill them. It was a very unfair system but nothing can be done about it now.

If you were self-employed and paid Class 2 contributions they count towards your pension equally with Class 1.

Credits
Some people who did not pay contributions were credited with them. The rules about credited contributions are very complicated. But broadly speaking you may be able to get credits for years you 
  • Got child benefit for a child under 16 (that changed to under 12 from 2010)
  • Were unemployed and looking for a job on Jobseeker's Allowance - sometimes even if you were not on benefit
  • Were on employment and support allowance, or were eligible for it, or got statutory sick pay
  • Received working tax credit 
  • Cared for someone who was sick or disabled
  • Got maternity or paternity benefits 
  • Were male and did not work in the few years approaching the age of  65.
Some credits are given automatically; others have to be claimed. The gov.uk website publishes a full list of credits and which have to be claimed. There are also details of how to check your record. It is all ridiculously complicated but can be very worthwhile!

If you find you still have gaps in your National Insurance record and you have less than 30 years contributions you may be able to fill them now. 

Six years back
The general rule is you can only fill a gap which is up to six years old. So now, in 2015/16, you can fill gaps back to and including the tax year 2009/10. The cost of those contributions depends how old they are. For 2009/10 to 2012/13 they will cost £733.20 for each year you fill. Filling 2013/14 will cost £704.60 and 2014/15 will be £722.80. Those rates will probably change from 6 April 2016. 

Longer ago
Some people are allowed to fill much older gaps going right back to 1975/76. The people who can do this are 
  • men born 6 April 1945 to 5 April 1950 
  • women born 6 April 1950 to 5 October 1952 
They all reached state pension age between 6 April 2010 and 5 April 2015. They must also have at least 20 years National Insurance contributions – paid or credited (though at least one must have been actually paid).

You must pay these extra contributions within six years from the date when you reached state pension. So it is too late for the oldest in this group and there is not long left for some of the slightly younger ones. The cost is £733.20 for each year paid. 

This group can also pay to fill gaps back to 2009/10, but only for years before they reached state pension age.

What you get
Remember it is only worth paying enough contributions to ensure you have 30 years. Paying for extra years after that does not increase your pension further. In exchange for the contributions you will get extra pension of around £200 a year from the date you pay. So the payback time for the cost of the contributions is less than four years. The pension you buy is basic state pension and will rise by at least 2.5% a year until April 2020 and after that in line with earnings, unless the law is changed.

More information: Filling older gaps
Paying Class 3 voluntary national insurance contributions

14 October 2015
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