The deadline for back-paying National Insurance contributions from 2006 to 2016 falls on 5 April. Read everything you need to know about taking this step.
One of the bedrocks of your retirement income is likely to be the State Pension.
Although it will be unlikely to make up the majority of your income when you stop working, the new State Pension could provide up to £185.15 a week as of the 2022/23 tax year.
Plus, with the triple lock set to apply from April 2023, this maximum payment could be further boosted by up to £900 a year.
Crucially, you may not be aware that if there are gaps in your National Insurance record between 2006 and 2016, you could be entitled to less of the new State Pension than you thought.
Luckily, you can fill these by voluntarily paying National Insurance contributions (NICs) for the years you missed. However, there is a strict deadline to do so. After 5 April 2023, you’ll only be able to plug gaps going back six tax years.
So, here’s how to easily pay missed NICs for the decade between 2006 and 2016, and everything else you need to know about the process, so you can maximise your new State Pension eligibility ahead of retirement.
You can check your National Insurance record online in a matter of minutes
If you wish to check your new State Pension eligibility and potentially back-fill your NICs, you can check your State Pension forecast on the government website.
There, you will find how many qualifying years you have worked so far, and how much you are set to receive if you continue working until State Pension Age. Usually, you must have worked 35 qualifying years to receive the full new State Pension.
Importantly, even if you have worked for 35 years or more, some of these years may not count towards your State Pension eligibility.
For instance, you don’t qualify for years in which you:
- Did not earn enough to pay NICs, such as starting your own business, or taking time off for family
- Worked abroad or paid tax in another country
- Could not work due to ill health or injury.
So, even if you think you’re in the clear, it is important to double-check your eligibility before April 2023.
By paying missed NICs now, you could multiply your money many times over later
If your National Insurance record states you already qualify for the full new State Pension, there’s nothing left to do!
However, if you are short of qualifying years, there is a way to rectify the situation and potentially still receive the full new State Pension.
To become eligible, you can back-pay missed NICs voluntarily for the period between 2006 and 2016, before the deadline falls on 5 April 2023. After this date, you’ll only be able to voluntarily pay NICs for the previous six tax years.
Although choosing to pay extra NICs could cost you now, your money could be returned to you many times over when you begin receiving the full new State Pension.
Here’s how it works:
Type of NIC
Cost for a full year
Annual amount added to your State Pension
Class 2 (self-employed)
Class 3 (employed)
Source: Money Helper
So, based on the 2022/23 rates, if you lived 20 years after you begin receiving the new State Pension, you’d receive more than £5,000 back for spending between £163.80 and £824.
As MoneyWeek reports, if you “bought” an additional year of State Pension, you would recover the cost of the additional NICs after four years (net of basic-rate tax), and everything beyond that would be profit.
Remember: you can’t boost your State Pension past its maximum value. So, if you are already entitled to (or on track for) the full new State Pension, you will not need to buy previous years’ NICs.
10 ways you could have earned National Insurance credits, and how to include them in your qualifying years
It’s easy to forget that work is not the only thing that can offer you qualifying years. National Insurance credits can replace NICs and help boost your State Pension eligibility.
Here are 10 ways you could have earned National Insurance credits between 2006 and 2016.
1. You received Statutory Sick Pay, and so were not earning enough for a qualifying year.
2. You were eligible for, but not claiming, Employment and Support Allowance.
3. You were wrongly imprisoned and unable to work, as long as your conviction has now been overturned.
4. You received maternity, paternity, or adoption pay that did not allow you to earn enough for a qualifying year.
5. You accompanied a spouse or civil partner overseas as part of their service to the British armed forces.
6. You cared for a family member under 12, and you were aged between 16 and State Pension Age. This is sometimes referred to as “grandparent credits”.
7. You cared for an ill, injured, or disabled individual for 20 hours a week or more.
8. You were called for jury service while in employment.
9. You were a foster carer after 6 April 2010.
10. You were unemployed and actively looking for work.
To apply for National Insurance credits and potentially boost your State Pension eligibility, visit the government website ahead of the April deadline.
Discuss your decision with your Kellands financial planner
As you may have realised by now, there’s a lot to consider when deciding to buy NICs for previous years. If you have already made up your mind and wish to fill in the gaps, follow the instructions on the government website as soon as you can.
Although the deadline is approaching, it could be constructive to discuss your options with your Kellands financial planner. It may be that buying additional years of NICs isn’t cost-effective for you, so consulting an expert can put your mind at rest when deciding what to do next.
Get in touch
For a discussion about NICs, the State Pension, or any other financial matter, email us at firstname.lastname@example.org, or call 0161 929 8838.