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 several factors, including how much you've paid over the years in National Insurance contributions and whether you have 'contracted out' at any stage. 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 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 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 National Insurance 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 National Insurance contributions, deductions can also be made from your total pension.
How do I ‘top up’ my contributions?
You can ‘buy’ additional years National Insurance contributions. These are known as ‘Class 3 National Insurance contributions’, but if you're self-employed or live abroad, you may be able to 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 National Insurance 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 National Insurance contributions, then you will need to stop paying these reduced rates to contribute to Class 3 contributions.
- Some people are entitled to claim their spouse's pension after their death. The rules on this are quite complicated though, as they depend on when each of you reach retirement age. And under the new State Pension they do not apply at all. However, if you think this might apply to you it's worth weighing up whether additional National Insurance contributions will give you more benefit than you would get from your spouse's pension. As ever, if you are unsure, they best thing to do is to speak to an adviser who will be able to look at your specific details.
How can I find out if it’s worth doing at all?
The Pensions Advisory Service has a a very helpful page on voluntary National Insurance contributions, and you can also check your National Insurance statement via Gov.uk.