Topping up your State Pension

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.

The amount of State Pension you get is based on your record of National Insurance contributions (NICs). If you haven’t made enough contributions, then you won’t get a full State Pension. But you may be able to pay voluntary contributions to boost the amount you get, even if you’ve already retired. Making extra contributions will not necessarily increase your State Pension though. To check your eligibility to increase your State Pension you can contact the Future Pension Centre on 0800 731 0175.

Class 3 NICs are voluntary National Insurance Contributions made by you. The cost of voluntary Class 3 NICs for the current year of 2018/19 is £14.65 per week (This varies dependent on the year). This means it costs up to £762 to buy an extra qualifying year of NICs. Under the new flat rate State Pension system this would boost your State Pension by 1/30 of the full rate so you’d get an extra £4.70 of State Pension every week, or £244.40 a year. Given that it costs a one-off lump sum of no more than £762 to buy extra pension of £244.40 a year, it would only take 3 years and 2 months of receiving higher State Pension to recoup this cost (before tax) and you would continue to receive this extra pension for the rest of your life.

The risk of making voluntary contributions is that if you die shortly after taking your benefits then the cost of topping up may not be recouped.

The rules for topping up your State Pension are complicated but if you have gaps in your NI record and can afford to make voluntary Class 3 NICs, the rewards can be large relative to the cost of doing so. 

This information is based on the State Pension rules as of February 2019 and our interpretation of such. Oakworth Financial Planning cannot legislate for future changes in pension legislation that may affect the suitability of topping up your State Pension.

How do you go about making these additional voluntary NI contributions?

There are a variety of ways including sending a cheque through the post, paying at your bank or building society, paying online, over the phone or monthly via Direct Debit. 

You can find more details at – https://www.gov.uk/pay-voluntary-class-3-national-insurance