Sunday 26 March 2023

FILL THAT GAP - if you reach pension age from 6 April 2016

UPDATED 26 March 2023

These rules apply to men born 6 April 1951 or later and women born 6 April 1953 or later. if you are older than that it is too late to fill gaps in your National Insurance record - see different rules for older people

You need 35 years of National Insurance contributions to get a full state pension. If you have fewer than 35 years National Insurance contributions you will get a reduced pension. So if you have 21 years you will get 21/35ths or 60% of a full pension. If you have less than ten years you will get no pension.

It may be possible to pay some extra contributions now to fill some or all of that gap. They are called voluntary Class 3 National Insurance contributions. 

Contributions at work
You will have paid National Insurance 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 National Insurance contributions would have been paid. If you earned too little to pay them 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.

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. Usually you would be on Jobseeker's Allowance - but you may get credits even if you were not 
  • 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 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 35 years contributions you may be able to fill them now. 

Seventeen years back
You can pay contributions back to 2006/07. Each tax year from 2006/07 to 2019/20 will cost you £824.20. Contributions for year 2020/21 will be £795.60 and for 2021/22 will be £800.80. The cost to pay voluntary contributions to fill the past year 2022/23 is £824.20 and for the current year 2023/24 £17.45 a week or £907.40 for the year. However, that higher rate will not be charged for any back contributions paid up to 31 July 2023.

You must buy the extra contributions by 31 July 2023. After that you will only be able to buy them back to 2017/18. You cannot buy contributions for the tax year in which you reach state pension age or any later year. 

Should you pay?
It is complicated to decide if it is worth paying to fill gaps. If you have fewer than 30 years contributions under the old system before 2016/17 it is probably only worth filling old gaps to bring that up to 30. However, in some circumstances it may be worth filling old gaps to bring it up to 35. If you can do so it is always worth filling gaps up to 35 by paying contributions from 2016/17. And it may be worth ensuring you pay contributions under the new system even if you have 35 years contributions and you have spent some time paying into a good company or public sector pension scheme. That is explained in another blogpost.

In exchange for one year's contributions you will get extra pension at 2023/24 rates of £5.82 a week (£302 a year) from the date you pay. So the payback time for the cost of the contributions is less than three years though nearly three and a half if you pay basic rate tax and about four and a half if you pay higher rate tax. The pension you buy should rise by at least 2.5% from April 2024 and after that in line with earnings or possibly prices depending what a future government decides. 

26 March 2023
vs. 2.50