Should you buy additional National Insurance credits to top up your State Pension?
Even if you have workplace or private pensions to rely on, your State Pension is likely to form a significant chunk of your retirement income in later life.
Under the new State Pension, you need to have a minimum of 10 years’ worth of National Insurance contributions (NICs) on your record to receive any at all; for the full amount of State Pension, you’ll typically need 35 years’ worth.
You will usually accrue credits by paying NICs on your income or when you receive benefits such as if you are off work with an illness, or if you’re caring for someone.
So, what can you do if you have any gaps in your record?
Fortunately, you can top up your NICs by buying credits for previous years, but there is a catch. You can usually only buy credits for up to six preceding years. That said, until April 2025 you can buy credits for years as far back as 2006.
So, should you buy additional credits before the deadline? Read on to learn the pros and cons of topping up your National Insurance credits and to find out if it might be a sensible choice for you.
In 2023/24, the full State Pension is worth £10,600 for the year
If you are eligible for the full State Pension, in 2023/24 you’ll receive £203.85 a week. The State Pension is protected by the “triple lock”. This means that the government will increase this amount each year in line with the greatest of:
Inflation
Average wage growth
2.5%.
This is a helpful way to ensure that the buying power of your State Pension income keeps pace with rising prices. As you’ve seen over the past 18 months, that can be especially valuable in times of high inflation.
The State Pension is a guaranteed sum you can rely on in retirement. Given that it rises each year in line with economic circumstances, it may be a high priority to ensure that you have made sufficient NICs to receive the full amount.
It costs £824.20 to buy 1 year of National Insurance credits
It costs £824.20 to buy a full year of National Insurance credits for previous years, but if you need to buy credits for the 2023/24 tax year, the rate for buying Class 3 credits – that is, voluntary contributions – increases to £17.45 a week (roughly £907 for the year).
If you do decide to buy additional credits to boost the amount of State Pension that you are eligible for, depending on your circumstances, you could receive a worthwhile return on investment.
MoneySavingExpert reveals that if you qualify for the minimum amount of State Pension (you have 10 qualifying years of National Insurance credits), each additional year that you buy could add £275 a year to the value of your State Pension.
According to the Office for National Statistics, a man aged 66 today (this is the current State Pension Age, but it will rise to 67 in 2026) will live, on average, for another 19 years. A woman aged 66 today will live for another 21 years on average.
So, as you can see, boosting the amount of money that you are eligible for even with just one year of additional credits could prove to be a sensible decision when you start taking your State Pension.
You can buy credits from as far back as 2006, but the deadline for this is April 2025
Ordinarily, you can only buy back National Insurance credits for the previous six years. However, when the new State Pension was launched in 2016, the government extended this so you could buy additional credits from as far back as 2006.
The deadline for doing so has been extended to April 2025, so if this is something you are considering, it’s important to look into it sooner rather than later. After this date, the window for buying additional credits will revert back to the original six years.
You may be able to claim additional credits
If you do have some gaps in your record that you’d like to fill, it’s important to think carefully about whether it’s necessary to buy extra credits now.
If you still have some years ahead of you before you retire, it’s possible that you might be able to make up the shortfall by paying NICs on your income.
You may also be able to backdate a claim for additional credits, for example if you were:
On maternity leave
Caring for an elderly or sick relative
Signed off work due to illness or injury
Caring for your grandchildren.
You can check your current eligibility on the government website and discover if you have any years missing from your record.
Consult with a professional to discover whether this could be the right choice for you
Buying additional National Insurance credits isn’t right for everyone. Before you go ahead with it and commit, it’s important to consult with a financial planner who will be able to look at your specific circumstances and advise you of the most sensible course of action for you.
If you’d like to speak to a reliable financial planner in Towcester who can help you to plan and save for your retirement, we can help.
Email theteam@fortitudefp.co.uk or call us on 01327 354321.
Please note
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.