Understanding National Insurance top-ups



This is an area that I know people struggle with so when I saw a good article in Which? Money I thought I would use snippets to help people to understand what they need to do.

How state pension top-ups work

Your eligibility for the state pension is based on your age (currently, you qualify at 66) as well as how many years’ worth of National Insurance contributions you’ve paid or have been credited. These are known as ‘qualifying years.’

You need at least 10 qualifying years to receive any state pension and 35 years to receive the maximum amount (currently £203.85 a week or £10,600 a year). They don’t have to be consecutive years – many people have gaps in their record, for example, due to time off work or a period of living abroad.

You can improve your pension income by thousands of pounds over the course of retirement by paying to fill in gaps in your NI record.

How to fill National Insurance gaps

1. Make a start by checking your National Insurance record (uk/check-national-insurance-record) to see if you have any missing or incomplete years.

2. You can get a state pension forecast at uk/check-state-pension to see how much you’re expected to get based on your NI record so far. There’s no point in buying missing years if you’re already set to get a full state pension, so it’s worth checking.

3. Confirm with the relevant team within the DWP that topping up will definitely boost your state pension before paying any money. If you’re not yet at state pension age, you’ll need to contact the Future Pension Centre on 0800 731 0175. If you’ve already reached state pension age, contact the Pension Service on 0800 731 0469.

4. If you decide to go ahead and pay voluntary NI contributions, you’ll need to contact HMRC on 0300 200 3500 to find out exactly how much it will cost to fill in the gaps. It will give you an 18-digit reference number, which you’ll need to make the payment.

5. You need to send the money directly to HMRC. The extra NI years will be credited to your record if you’re not yet receiving state pension. If you are already receiving it, the DWP will carry out a benefit review and then increase your payment.

Under normal rules, you can only fill gaps in your NI record from the past six years. But if you reached or will reach state pension age after 6 April 2016, you currently have the option to plug gaps going back to 2006. This applies even if you’ve already started receiving payments, although top-ups will not be backdated.

The deadline for filling gaps between 2006 and 2016 was originally set for earlier this year but has been pushed back to April 2025.

Under the new state pension rules, you’ll need to live for at least 15 years after you start receiving payments to ‘break even’ – in other words, to end up with more money overall than if you had taken payments straight away.  So if you defer your state pension for a year and start taking it at 67, it will take you until 82 to recoup the £10,600 you missed out on in the first year. 

On top of the higher payments you can get by deferring your state pension, there is a potential tax advantage too.  Income from the state pension is taxable at your usual income tax rate so if you’re still working and the combination of these earnings plus the state pension would push you into a higher tax bracket, you might decide to wait until you stop working to take your payments, so these will be taxed at a lower rate. 

However, you also need to consider whether the increase in your payments by deferring your state pension could push you into a higher tax bracket when you start claiming it in the future.

How to defer your state pension

You don’t automatically receive the state pension when you reach state pension age – you have to make a claim.  If you do nothing, your state pension is automatically treated as deferred.

What you need to know about the triple lock

It guarantees a minimum increase of 2.5% each year but increases can be much higher, depending on the other two parts of the triple lock: average wage growth and inflation.

Average wage growth in September hit 8.5 % – higher than inflation (6.7%). The Chancellor confirmed that the state pension will rise by 8.5% in April 2024 – those on the full new state pension will get £221.20 per week and those who reached state pension age before April 2016 will get £169.50.

Anna Goodwin @2023 All Rights Reserved.