Why you should pay now to fill gaps in your State Pension

The full State Pension will be worth £203.85 a week from April 2023, or £10,600 a year, so on its own it probably won’t be enough to fund the lifestyle you want. Hopefully, when you retire you’ll have a mix of additional assets, such as a workplace pension and savings, to make a difference in later life.

But the State Pension is still going to be vital, and it’s dangerous to take it for granted when calculating what you’ll need. That’s because it’s not guaranteed you’ll get it, or that you’ll get the full amount.

Though the rules vary depending on your current age, for men born after April 6, 1951, and women born after April 6, 1953, you’ll broadly need to have ten qualifying years in order to get any of it at all. And to get the full amount you’ll probably need 35 years in total (frustratingly it can vary by individual­—my record says I only need 30!).

If you fall short of this total you’ll receive less of the State Pension. That can be quite significant, roughly £275 each year. So if you have, say, 24 out of 35 years, you’ll get around two-thirds of the max amount, losing you around £3,500 every year.

So how do you ensure you get the full amount? Well, a qualifying year is one in which you paid National Insurance. Most people do this via their salary. If you work full-time for 35 years then you’ll have a full record and get the full amount.

It’s also possible you might have received National Insurance credits from payments such as Job Seeker’s Allowance and Child Benefits, and those credits can count towards a full qualifying year too.

To find out exactly how many full NI years you’ve accumulated, and how many more years you need you’ll need to check your record at gov.uk/check-state-pension or contact the Future Pension call centre on 0800 731 0175.

You’ll also be able to see the years where you fell short.

Until April 5 this year, you can fill in State Pension payment gaps all the way back to 2006

Depending on how many years you’ve amassed already and your age right now, it could be that you have plenty of time to reach 35 years through normal work, which is the best way to qualify. You might even have already gone past the required number of years and be all set. In these cases, there’s nothing to worry about.

But if you’re close to retirement age and have gaps in your record, have lived abroad, or if you are hoping to quit work early, then that could make things harder.

Fortunately, there’s always the option to make voluntary payments in order to get to the full qualifying amount. This is usually limited to filling gaps in the last six years, but until April 5 this year, you can actually top up all missing years since 2006—meaning there are up to 16 years on offer. If you or anyone you know could benefit from this extended period you’ll need to act fast!

And it really can be worth it. At current rates, you’ll pay around £824 in voluntary National Insurance to top up a single year. This will add around £275 to your annual State Pension when you claim it. So for each year you pay for now, you’ll need to live long enough to receive the State Pension for three years to break even.

Every year after that, you’re making a profit on the initial payment. Assuming that you live for another ten years, that’s a total £2,000 return for each extra qualifying NI year, jumping to £5,000 if you live to 88 (based on the current retirement age of 67).

If you’re topping up a partial year or are self-employed then the amount you’ll pay now will be less, but you’ll still get the same uplift in the actual State Pension payment when you retire.

But before you do make any of these extra payments, it’s worth doing a little more research on your personal situation, as there can be consequences worth considering.

For example, those on low incomes might miss out on free Pension Credits, while those with healthy pension pots could end up losing some of the boosted return through tax. There’s also the added complication if you were ever “contracted out”.

For those planning to retire early with a decent yet not full NI record, it’s also worth bearing in mind you can make voluntary contributions each year after you stop working, and you can still backdate these payments through the previous six years.

If there’s a chance your plans might change and you keep working or even return to work before you claim your pension, it could be worth waiting before making extra payments.

It’s also important to check you can’t get any missing years filled for free. Some NI Credits can be backdated if you didn’t claim them at the time, including if you weren’t working as you needed to care for someone or if you were on statutory sick pay.

You can find out more about these from the gov.uk website or Future Pension hotline.

Having said all this, it’s worth noting that the State Pension is under review. This will probably mean a speedier increase in the State Pension age, so those born after 1970 will have to wait longer before they can get it—and as a result, have to reach an older age before the top-ups have paid for themselves.

And there’s always the chance that larger reforms in the future could restrict how much you get if anything at all. It’s worth contributing as much as you can to private or workplace pensions to boost your retirement income.

If you need expert advice or help and support with your pension and retirement planning from a trustworthy source, contact Unbiased today.

Read more: Why you shouldn't stop paying into a pension

Read more: Are you getting the pension you deserve?

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