Boosting State Pension
If you thought that the State Pension is the same for everyone, think again. It varies from one person to the next and depends on how much you've paid over the years in National Insurance contributions. The good news is that boosting your State Pension almost always makes sense – particularly if you are some years away from actually retiring.
How can I increase my State Pension?
In short, you can ‘top up’ the money you’ve saved via your National Insurance (NI) contributions.
How does it work?
This depends on if you are affected by the new State Pension.
If you reach State Pension age before 6 April 2016, you must have contributed to National Insurance (NI) for at least 30 years to receive the full Basic State Pension.
However, if you reach the State Pension age on or after 6 April 2016 you will need to have contributed at least 35 years of NI contributions (or credits) to receive the full new State Pension.
It's also important to remember that if you’ve paid less than that, then the amount you’ll receive is reduced pro rata. So, for example, if you’ve only paid (or received credits) for 17 years then you’ll only get about half the State Pension amount.
If you have ‘contracted out’ of NI contributions, deductions can also be made from your total pension.
How do I ‘top up’ my contributions?
You can ‘buy’ additional years NI contributions. These are known as ‘Class 3 National Insurance contributions’, but if you're self-employed or possibly living abroad, you can pay Class 2 contributions instead. There are some conditions, though, including the option to buy contributions to cover any of the previous six tax years, plus the current year. For more information, we recommend you visit the Gov.uk dedicated page.
Should I definitely top up my NI contributions?
For most people, it’s a good idea to ‘catch up’ on a couple of years’ missing contributions – perhaps if you were at home with children for a couple of years, or overseas on a work placement with a foreign employer. But there are some things worth thinking about:
- If you’re entitled to Pension Credits, you’ll usually get more than the amount you’d receive from the full State Pension anyway. Due to means testing, your entitlement to Pension Credit may be reduced by some or all of the increase to your State Pension.
- If you’re a married woman paying reduced NI contributions, then you will need to stop paying these reduced rates to contribute to Class 3 contributions.
- If the extra years you buy wouldn’t give you a higher income than you could get by claiming the State Pension payable to you in respect of your spouse/civil partner, then it’s clearly not worthwhile.