To qualify for a level of state pension you must have at least 10 qualifying contribution years, and if you have at least 35 qualifying years you will be entitled to the full state pension.
Those with fewer than 35 qualifying years will be restricted by 1/35th of the full pension rate for each year below 35 their National Insurance (NI) record.
Contributions come from various sources, including PAYE earnings, caring for children under the age of 12, employment, self-employment, claiming of some benefits and voluntary contributions.
Voluntary contributions can be made into your pension fund to enhance a period, but now are limits to doing so.
How can gaps be filled?
Usually, you can only make voluntary contributions in respect of any gaps in your NIC record of the previous six years. However, with the introduction of the flat rate pension there is an opportunity for men born after 5 April 1951 or women born after 5 April 1953 to purchase contributions to fill gaps in their NIC record between April 2006 and April 2016 as well as the usual 6-year period.
The current Class 3 voluntary contribution is £15.85 per week or £824.20 per year.
As the state pension is currently £185.15 per week, each qualifying year is worth £5.29 per week or around £275 per year. Someone with 10 missing years could pay out a little over £8,000 to fix the gaps but could see a boost of £55,000 in state pension over a typical 20-year retirement (FT Adviser) and a full repayment of voluntary contributions after 4 years.
What action should be taken?
After 5 April 2023 any gaps in the NIC record become permanent for years to April 2016 so we urge people to act fast.
- Review your state pension entitlement. You can either submit a BR19 on the gov.uk website or set up a personal tax account on government gateway and view your qualifying years online.
- Check at what age you will be entitled to the state pension. We suggest using an online search for state pension age to find the government calculator.
- Determine if you are likely to have accumulated 35 qualifying years by your state pension age.
- If you won’t reach 35 qualifying years based upon your existing contributions (and those anticipated until retirement age) you should consider the impact on your pension of any gaps in your qualifying years since 2006.
Not everyone will benefit from making voluntary contributions, for example those with full employment records (with earnings above the lower earnings limit each year) are unlikely to.
But those who took career breaks, worked overseas or have not correctly registered as being self-employed are likely to find substantial benefit in considering making voluntary contributions.
If you would like to discuss the points raised here or consider your retirement provision options further please contact at firstname.lastname@example.org or call on 01473659777.