A Pension deadline is fast approaching that could see individuals aged between 45 to 70 miss out on valuable State Pension Entitlement from April 6th 2023.
If you’re looking to maximise your income in retirement, a good place to start is with your State Pension. If you’re not getting the full amount or are not on track for it, then it’s worth considering topping up. The cost of doing this is effectively subsidised by the Government which means it can be very good value for money.
How National Insurance affects your Pension?
In April 2016, new rules were introduced in an attempt to simplify the rules around State Pension entitlement – you now need to have 35 qualifying years to be entitled to the full State Pension (£10,600pa from April 2023) or a minimum of 10 years to receive a portion of State Pension.
Qualifying years come in different forms:
• National insurance credited whilst in employment.
• Claiming child benefit for a child under 12
• Receiving Jobseeker’s Allowance or Employment and Support Allowance
• Receiving Carer’s Allowance
If for example you had missed out on a number of qualifying years and you had a reduced 20 years, this would be calculated as follows;
Number of qualifying years / Full 35 years x £10,600
20 / 35 = 0.57
0.57 x £10,600 = £6,042 (this would be the full amount you would receive based on 20 qualifying years).
What is happening after April 6th 2023?
There is currently a 10 year window which is in play to allow you to trace back all the way to April 2013 and essentially buy any missing National Insurance credits. From April 6th 2023, this is changing and the rules will only permit you to go back 6 years in your NI records.
Is it worth buying missing years on your NI records?
You top up your State Pension by making Class 3 NI contributions. They’re voluntary National Insurance Contribution made by yourself. The cost of voluntary Class 3 NICs in for example the 2018/19 tax year is £14.65 per week (This varies dependant on the year) – this means it costs up to £762 to buy an extra qualifying year in 2018/19. This would boost your State Pension by 1/35th of the full rate so you’d get an extra £4.20 of State Pension every week or £218.31 a year. Given that it costs a one-off lump sum of no more than £762 to buy extra pension of £218.31 a year, it would only take 3 years and 4 months of receiving the higher State Pension to recoup this cost and you would continue to receive this extra pension for the rest of your life. Definitely worth doing!
What to do?
The easiest way to assess your NI records is by logging onto the Government Gateway portal and on the dashboard it has your National Insurance records right back to the first year of your employment. This will allow you to identify if you have any gaps in your records as well as understanding what your entitlement to State Pension might look like at your State Pension age.
As ever, should you require any help understanding the above or feel you would benefit from coming to see us to discuss your finances, please do not hesitate to contact us on 01977 600020 or email your financial adviser.