Topping Up Your State Pension
To receive a full state pension, you must have made a certain number of years of National Insurance contributions (NICs) by the time you reach the state pension age (a minimum amount of contributions is required to make each year count as a 'qualifying year' towards your overall contributions record).
How Many Qualifying Years Do You Need?
If you reach state pension age on or after 6 April 2010, then you'll need 30 qualifying years; if you have less than this amount, then you'll receive 1/30 of the full basic State Pension for each qualifying year you have. So if, for example, you had 15 qualifying years, you would be entitled to 15/30 (1/2) of the full basic State Pension.
How You Can Make Up a NIC Shortfall
If you have gaps in your National Insurance contribution record (for example, if you were self-employed and exempt from paying Class 2 contributions, if you were unemployed and not claiming benefit, if you were employed but had low earnings, or if you were living abroad, then you may be able pay Class 3 Voluntary NI contributions, thereby helping you qualify for, or improve, your entitlement.
In general, you are permitted to make up the shortfall within 6 years from the end of the tax year for which they are being paid - and you can do this even if you've already reached State Pension age. So for example, if you missed paying NICs for the 2007-8 tax year, then you have until 5 April 2014 to pay Class 3 Voluntary NI contributions to make up for the shortfall. However, the NIC rate may increase if you pay more than 2 years after the end of the relevant tax year.
However, not everyone will benefit from paying Class 3 Voluntary NI contributions. For example, an improved basic State Pension may reduce any income-related benefits, for example Housing Benefit, Pension Credit, or Council Tax Benefit when you've retired, and it may also mean that you pay more tax. Your decision to pay additional voluntary contributions may also be affected by the date you reach State Pension age and the number of qualifying years you expect to have by that date.
Special Rules for Those Reaching State Pension Age in 1998-2004
There is an allowance for some people to pay voluntary NI contributions for the tax years 1996/7 to 2001/2, to be paid no later than 5 April 2010. The measure applies to:
- Men born between 6 April 1933 and 23 October 1939 (who reached State Pension age between 6 April 1998 and 23 October 2004).
- Women born between 6 April 1938 and 23 October 1944 (who reached State Pension age between 6 April 1998 and 23 October 2004).
Special Rules for Those Reaching State Pension Age in 2008-2015
New legislation in the Pensions Act 2008 offered a special extended allowance for some people to pay up to an additional six years of voluntary contributions to cover years going back to 1975/6, over and above those permitted under the usual time limits. The new measure applies to individuals who:
- Reach State Pension age between 6 April 2008 and 5 April 2015.
- Already have 20 qualifying years, including any full tax years of Home Responsibilities Protection (HRP).
- Have at least one qualifying year that consists of paid contributions, or contributions treated as paid (only required for those reaching State Pension age between 6 April 2008 and 5 April 2010).
