How paying national insurance voluntary contributions can boost the state pension
Head of Policy, Pensions & Investments.
State pension is a significant part of many people’s retirement, along with their workplace pension.
Why might the state pension be of interest to those saving into a workplace pension? Well, the state pension is likely to provide a significant retirement income for those in their mid- to late-60s.
It’s why we suggest people start investigating how much state pension they’re on track to get from their mid-40s onwards, ideally. They might also be interested if they’re receiving state pension while still working but not getting the maximum.
Paying national insurance voluntary contributions can boost some people’s state pension, and we’ve provided links to Department for Work & Pensions information at the end for those who want to investigate this further.
We can’t say whether voluntary contributions will be right for individuals, so we recommend people get financial advice if they’re unsure.
How state pension works
Anyone who started building up new state pension entitlement from 6 April 2016 gets 1/35 of the maximum (£203.85 in 2023-24) for each qualifying year. They need at least 10 national insurance qualifying years to get any state pension and having 35 years gets the maximum. These qualifying years can be based on national insurance contributions and credits.
They can’t get more than this, even if they have to carry on paying national insurance as they’re working.
It’s more complicated for those who started building up new state pension entitlement under the old rules before 5 April 2016. It’s likely that their starting amount on 6 April 2016 was less than the maximum. If so, they can build further entitlement at 1/35 of the maximum for each extra qualifying year up to their state pension age.
Again, they can’t get more than the maximum even if they have to carry on paying national insurance. A few people got the maximum plus a protected amount as at 6 April 2016 and can’t build up any further entitlement.
Employment and national insurance
Those in employment and under state pension age can build up qualifying years by paying national insurance on earnings above £242 a week (£12,570 a year) in 2023-24. Lower earners might be able to build up qualifying years even though they don’t pay national insurance. That’s as long as they earn at least £123 a week (£6,396 a year) from a single employment in 2023-24.
Self-employment and national insurance
For those who’ve been self-employed, any Class 2 national insurance builds up state pension qualifying years.
National insurance credits for parents, carers and others
People might be able to build up qualifying years from national insurance credits if they register for child benefit, have caring responsibilities or receive some types of unemployment or sickness benefits.
They get some types of national insurance credits automatically but may need to claim others, so they don’t risk missing out.
Paying voluntary contributions to improve state pension
Voluntary contributions can be paid by those close to state pension age and who are not entitled to the maximum, even allowing for future national insurance contributions and credits. Those who reached state pension age from 6 April 2016, made a claim, and are getting less than £203.85 a week for 2023-24, might be able to improve this by paying voluntary contributions.
For those who are eligible, each year’s voluntary contribution buys an extra 1/35 of the state pension, up to the maximum. In 2023-24, 1/35 of the £203.85 a week state pension is £5.82 – close to £303 a year. The state pension is taxable, so any financial benefit might be lower for those whose total income is high enough to pay income tax.
Once the extra payments are added to the state pension, it’s payable throughout someone’s life. It currently gets triple-lock increases each April – the greater of 2.5%, consumer price index inflation, and the increase in national average earnings.
What are the costs?
Voluntary contributions rates are payable at 2022-23 levels and are £15.85 a week for Class 3 so each extra qualifying year costs £824.20. Some people might be able to buy cheaper Class 2 voluntary contributions.
As long as they’re eligible, paying £824.20 to buy one qualifying year currently secures around an extra £303 state pension a year. As an example, if there’s a gap of three qualifying years, paying £2,472.60 increases the state pension by around £909 a year before tax.
Deadlines for voluntary state pension payments
Normal rules mean people can only improve their state pension by paying voluntary contributions to gap-fill for the previous six years.
However, men born after 6 April 1951, or women born after 6 April 1953 have until 5 April 2025 to gap-fill between 6 April 2006 and 5 April 2017. They can also fill in any later gaps – currently up to 2022-23.
Reasons not to make voluntary contributions
It probably isn’t worth paying voluntary contributions for those in serious ill health. Buying an extra qualifying year, costing £825 and getting an extra £303 a year, means they’d need to live for more than two years, nine months after starting to receive the state pension to get a financial benefit.
Savers need to make extra checks to see if they’re entitled to means-tested state benefits – or think they might be. Using savings to increase the state pension reduces other benefits. Organisations such as Turn2us might be able to help those in this situation.