Why is April 5th Significant for State Pensions?

When thinking about the upcoming tax year end, you would be forgiven if you were under the impression that your annual allowances were the only things to consider.

The upcoming tax year end is also your last opportunity to purchase National Insurance (NI) credits all the way back to 2006.

Why Is This Important?

Reliance on the State Pension to provide a risk free, secure foundation for income is a key expectation in the UK.

To qualify for a fully funded State Pension you must have 35 years’ NI contributions, which are typically earned by paying NI through your working life, or NI credits.

If you missed years of NI contributions, you may not have reached the 35-year threshold. This shortfall can add up to a large sum of money left on the table over the course of your retirement.

The government has set a deadline of 5^th April 2025 for people to make up gaps in their NI records from 2006 onwards. Following this deadline, the maximum number of years that can be topped up is the last six years by paying class 3 voluntary NI contributions, or class 2 if eligible.

Whether or not you should top up your NI record is something you should decide based upon your own personal circumstances.

One consideration is how many more years you will continue to work and contribute to NI, and if this takes you to 35 years in its own right; another is that you may receive NI credits if you are registered for Child Benefit or Carer’s Allowance for example, or if you may register for these in the future.

It also becomes a mathematical question; how does the cost of paying for the top up compare to the additional income you would receive, and how long do you have to receive this extra State Pension before you break even?

You should also consider the marginal rate of tax you expect to pay in retirement. If you have other sources of income the net of tax increase in the State Pension may not make a significant difference to your standard of living; and, if your spouse or civil partner has a full State Pension in their own right, this won’t pass to them in the event of your death.

So, if it’s a question of “it depends” what action should you take?

What Action Should You Take?

Firstly, get informed!

The Department for Work and Pensions (DWP) are the only people equipped to calculate any gaps in your NI record, and it’s reassuringly easy to obtain.

1. Check your NI record to see where any gaps lie, and the cost of filling them. This can be found via your government gateway account: Check your National Insurance record – GOV.UK.
2. You can also obtain your personal State Pension forecast via your government gateway account: Check your State Pension forecast – GOV.UK. This will tell you your anticipated State Pension at retirement age and whether you can improve this through additional contributions.
3. With your NI number to hand, call the Future Pension Centre, the government’s helpline, on 0800 731 0175. Their adviser will identify the gaps in your NI contribution years, the cost for filling in those years, by making a top up payment before 5^th April 2025 and the increase to your State Pension this would provide. It’s important to talk to the Future Pension Centre as sometimes topping up your pension doesn’t improve the amount of State Pension you will receive and they will clarify this for you.