Today’s Figures show a big increase in the amount of people making voluntary National Insurance contributions to top up their State Pension. It could help you greatly increase your income for retirement, but here are some things you should to be aware of before committing.
The State Pension quite often provides a solid base to build your retirement income on. The State Pension does provide a reliable income source, which offers us a fair amount of security.
How much can you expect?
The current full State Pension for 2019/20 is £168.60 per week or £8,767.20 per year. However, to ensure you receive this amount, you must have at least 35 years paid contributions on your National Insurance record. This is a main reason why a lot of people are making voluntary National Insurance contributions.
If you do have less than 35 years on your National Insurance record, you’ll only receive a portion of the full State Pension. There are many other reasons why you may have a gap in your record and by paying voluntary contributions give you a chance to fill these gaps.
Voluntary National Insurance contributions surge
Current figures show that the amount of people making voluntary National Insurance has gone up.
Statistics released by HM Revenue & Customs recently show that £119.3 million was actually paid in voluntary Class 3 National Insurance contributions in 2018/19, compared to just £12.8 million in 2016/17. This means there’s been a 900% increase in only 2 years.
Paying voluntary contributions is a way to protect short-term benefits. However, the increase coincides with changes in 2016 to enable more people to increase their State Pension. Whilst this can be helpful, it isn’t always the best route for you.
5 essential questions before making voluntary contributions
After creating a State Pension forecast, if you discover you may receive a smaller amount, it’s crucial you understand the limitations and the impact it’ll have.
- How many years can I contribute?
Typically, you can make voluntary contributions for the past 6 tax years, which end on the 5th April each year. As a result, if you have gaps in your National Insurance record going back more than 6 years, you may not be able to increase your State Pension.
In some cases, it can be possible to fill in gaps from more than 6 years ago depending on your age, so it’s worth checking.
- How much will it cost to fill in National Insurance gaps?
There are 2 rates depending on the class of National Insurance. Class 2 National Insurance contributions are used for self-employed workers and Class 3 for everybody else. For 2019/20, the rates are:
- £3 a week for Class 2; £156 for a year
- £15 a week for Class 3; £780 for a year
The amount you have to pay to add a year to your National Insurance record will depend on whether you have already made a contribution during that year. For example, if you made National Insurance contributions for 30 weeks, you’d only need to purchase the additional 22 to make up the year.
- Can I make voluntary contributions if I’m already claiming the State pension?
Yes, you can. If you started claiming your State Pension less than 6 years ago, you are still able to make voluntary contributions.
Your State Pension payments will increase as soon as your voluntary contribution is received. However, it will not be backdated. You should consider this when calculating whether it’s a step that’s worth it in your situation.
- How does it affect means-tested benefits?
Do you claim means-tested benefits? Will you do so once you retire? Increasing your State Pension may affect your eligibility. Your State Pension is classed as income. As a result, even a small increase may affect the support you receive and could mean you’re no longer eligible at all if you cross thresholds.
- What sort of impact would voluntary contributions have on my State Pension?
Before you choose to top up your National Insurance contributions, it’s important to ensure you know what it’ll mean for you. When you look at the additional income that you’d receive compared to the outgoing, you may decide it’s not worth it for your situation. This is an area we can help you with.