The latest figures show a big increase in the number of people making voluntary National Insurance contributions to top up their State Pension recordIt could help you increase your retirement income but there are some things to be aware of before you proceed.
The State Pension often provides a foundation to build your retirement income onAs the State Pension provides a reliable income source, it can provide securityBut, how much can you expect?
The full State Pension for 2019/20 is £168.60 per week; £8,767.20 annuallyHowever, to receive this amount, you must have 35 years on your National Insurance record, and this is a key reason why people are making voluntary National Insurance contributions.
If you have less than 35 years on your National Insurance record, you’ll receive a portion of the full State PensionThere are many reasons why you may have a gap in your record and voluntary contributions give you a chance to fill these gaps.
If you’re worried about the amount you’ll receive from the State Pension the first thing to do is get a forecast, which you can do here: Pension advice.
Voluntary National Insurance Contributions Surge
Figures show that the amount of people who are making voluntary National Insurance have increased.
HM Revenue & Customs has release stats that found £119.3 million was paid in voluntary Class 3 National Insurance contributions in 2018/19This compares to just £12.8 million in 2016/17That means there’s been a nine-fold increase in only two years.
Paying voluntary contributions is a way to protect short-term benefitsHowever, the surge coincides with changes in 2016 to allow more people to increase their State PensionWhilst this can be useful, it isn’t always the right path for you.
5 Essential Questions Before Making Voluntary Contributions
After doing a State Pension forecast, if you find you may receive a reduced amount, it’s important you are aware of the restrictions and the impact it’ll have.
1How Many Years Can You Contribute?
Typically, you can make voluntary contributions for the past 6 tax years, which end on the 5th April each yearAs a result, if you have gaps in your National Insurance record going back more than six years, you may not be able to increase your State Pension.
However, in some cases, it is possible to fill in gaps from more than six years ago depending on your age, so it’s worth checking.
2How Much Will It Cost To Fill In National Insurance Gaps?
There are two different rates depending on the class of National InsuranceClass 2 National Insurance contributions are used for self-employed workers and Class 3 for everybody elseFor 2019/20, the rates are:
- £3 a week for Class 2; £156 for a year
- £15 a week for Class 3; £780 for a year
The amount you have to pay to add a year to your National Insurance record will depend on whether you already made a contribution during that yearFor example, if you continued to make National Insurance contributions for 30 weeks, you would only need to buy the additional 22 to make up the year.
3Am I Able To Make Voluntary Contributions Whilst Claiming The State Pension?
YesIf you started claiming your State Pension less than six years ago, you can still make voluntary contributions.
Your State Pension payments will increase as soon as your voluntary contribution is receivedHowever, it will not be backdatedYou should think about this when deciding if it’s a step that’s worth it in your situation.
4Would It Affect Means-Tested Benefits?
Do you currently claim means-tested benefits? Or expect to do so once you retire? Increasing your State Pension could affect your eligibilityYour State Pension is classed as incomeEven a tiny increase could affect the support you receive and may mean you are no longer eligible at all if you cross thresholds.
5What Impact Would Voluntary Contributions Have On Your State Pension?
Before you decide to top up your National Insurance contributions, make sure you understand what it’ll mean for youWhen you look at the additional income that you’d receive compared to the outgoing, you may decide it’s not worth it for your situationThis is an area we can help you with.