National Insurance credits: why gaining more might help boost the value of your State Pension

There comes a day after a long life of hard work and graft when you can finally tell yourself “Stop! That’s enough” and enjoy your retirement.

All the clever planning done over the years alongside your adviser will likely have been building towards reaching this goal, allowing you to finally sit back, relax, and enjoy your dream lifestyle.

So, it is crucial that when that day arrives you have enough to provide for your desired level of comfort and to last you throughout your retirement without worrying about running out of funds.

The State Pension could be a useful way to support your retirement income. However, if you haven’t worked enough qualifying years and have gaps in your National Insurance records you might not be eligible for the full amount.

So, after reviewing your records, it might be worth considering making up any missing contributions — especially as a rapidly closing government window allows an extra opportunity to purchase additional National Insurance credits to boost the amount of State Pension you receive.

Read on to discover what you need to know ahead of this summer’s approaching deadline.

The State Pension is likely to support your retirement income

The current full State Pension is £185.15 a week or £9,627 each year for the 2022/23 tax year and will rise to £203.85 a week or £10,600 annually in the 2023/24 tax year.

Once you’ve reached State Pension Age (SPA) of 66 (rising to 67 from 2028), you’ll be able to access a guaranteed monthly income from the government throughout retirement.

The State Pension gains security and protection from the “triple lock”, which ensures it continues to rise each year in line with the cost of living. It can form an incredibly beneficial part of your retirement income plans.

To qualify for the full State Pension, you must have at least 35 qualifying years’ worth of National Insurance contributions (NICs) before reaching retirement.

You normally accumulate a year of “credit” if you:

• Worked and paid NICs
• Paid voluntary NICs
• Received certain benefits due to being ill, unemployed, or acting as a parent or carer.

However, if you have gaps on your record or fall short of qualifying years you might miss out on the benefits of receiving the full State Pension. Luckily, there is a window of opportunity to rectify the situation due to the government’s transitional arrangements.

The cut-off for the government’s transitional arrangements is 31 July 2023

On 6 April 2016, the government announced its new State Pension scheme, supported by a transitional window for anyone affected by the changes.

The new regulations mean that those who started their record prior to 2016 may need 40 years or more due to rules relating to their age and current National Insurance records.

The government’s transitional window allows individuals to plug this gap by offering them the opportunity to purchase NI credits dating back to 2006. However, this window closes on 31 July 2023, after which you may only be able to buy credits to fill gaps going back six tax years.

The boost to your retirement income through making retroactive contributions to your State Pension could be significant, and if you qualify to purchase credits dating back to 2006, it might be worth discussing with your financial planner if it could be the right move for you.

MoneyHelper reports that:

• Every extra qualifying year added to your State Pension is essentially worth £275.08 each year (based on 2022/23 rates)
• Credits cost £163.80 for a year of Class 2 (self-employed) and £824.20 for Class 3 (employed)
• Purchasing credits could boost your retirement income by almost £5,500 if you lived 20 years past the SPA
• Your investment would break even within eight months at the Class 2 rate and three years at the Class 3 — everything beyond that point is profit.

But before opting to part with any funds, it might be worth considering a few alternative ways to boost your record.

8 unexpected ways you might have accrued unused National Insurance credits, and how to include them in your record

As retirement plans typically span years and decades, it can be very easy to miss out on simple opportunities to boost your income, such as recovering lost pension pots or remembering to check if you have unused National Insurance credits you could add to your record.

You may have earned credits that you could use to add to your record between 2006 and 2016, if you:

1. Received maternity, paternity, or adoption pay and didn’t earn enough in a qualifying year.
2. Qualified for, but didn’t claim, Employment and Support Allowance.
3. Actively searched for work while being registered as unemployed.
4. Relocated with a spouse or civil partner overseas as part of their British armed forces service.
5. Cared for a family member under 12, while you were aged between 16 and SPA.
6. Received Statutory Sick Pay so were not earning enough for a qualifying year.
7. Supported an ill, injured, or disabled individual for 20 hours a week or more.
8. Served jury duty while in employment.

The process of reviewing your current National Insurance record is relatively simple and can be reviewed online through the government website. Checking how many years you are missing before you’ll be eligible for the full State Pension is likely to be worth your time.

Remember: the window closes this summer, so you’ll need to act fast.

Get in touch

If you are looking for ways to boost your retirement plans and help assuage any concerns about a potential income shortfall, purchasing National Insurance credits to gain access to your full State Pension might be a solution.

For advice on best next steps and to determine if it’s the right move for your plans, please email us at helpme@aspirellp.co.uk or call 0117 9303510.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.