Topping Up Your State Pension

Topping up your State Pension before you get to your State Pension Age could give a significant boost to your retirement income for the amount it costs.  

For a relatively small one-off payment, you could increase your State Pension for the rest of your life.  

In this article I’ll explain how you go about finding out if you need to top up your State Pension and the reasons why you should. 

How to find out if you should be topping up your State Pension

In order to receive the State Pension at your State Pension Age you need to have paid qualifying National Insurance contributions for at least 35 years.  

If you have paid less than 10 years National Insurance payments by the time you reach State Pension Age then you will not be entitled to any State Pension.  

If you have paid over 10 years but less than 35 years then your State Pension will be reduced proportionately.  

Some of the reasons why you may not have achieved the full 35 years of qualifying National Insurance contributions include: 

• You started working later in life, perhaps because you continued your education for longer. 
• You retired early, perhaps because you could afford to or because of ill health. 
• The level of earnings from your job resulted in your salary being below the threshold for qualifying National Insurance contributions. 
• You took time out of work to look after your children. Although if you or your partner received Child Benefit then you may still have qualifying years for this period. 

In order to find out your current State Pension position including what State Pension you are entitled to and your record of National Insurance contributions, the best place to start is your State Pension forecast. 

Anyone can set up a government gateway account and log in to their State Pension forecast. There is lots of valuable information you can see and it will tell you if you are missing years and what you need to do to be topping up your State Pension. 

If you are still working you may find that the next few years of work will automatically top up your State Pension to the maximum, however if you are already retired you may want to consider topping up. 

You can top up your State Pension by paying Voluntary National Insurance.  

These contributions are usually classed at Class 3 contributions if you are not self-employed and currently (21/22 tax year) cost £15.40 for each missing week.  

You may be entitled to pay a lower rate if the costs was less in the year you are missing.  

You are usually only allowed to pay voluntary National Insurance for missed years that were no more than 6 years ago.  

You can’t top up your State Pension to have more than 35 qualifying years.

Why it makes sense to be topping up your State Pension

By paying £15.40 for each week of missing National Insurance contributions it will purchase you around £4.80 per week extra State Pension income for the rest of your life.  

In annual terms that’s a one-off payment of £800 for £250 per year State Pension income.  

The advantages of topping up your State Pension include: 

1. It’s a good deal. Based on current voluntary National Insurance rates, you only need to receive 3-4 years of extra State Pension income and then you would have got your money back. Plus you then continue getting the extra State Pension income for the rest of your life. 
2. Getting what you are owed from the government. Even if you haven’t paid enough National Insurance contributions throughout your life you’ve still paid taxes all your life (Income Tax, VAT, Fuel Duty etc), it’s good to get the maximum back from the government. 
3. It’s a secure income in retirement. Whether you trust the government or not it is highly unlikely they will ever stop paying you your State Pension once it starts.  
4. The State Pension increases over time. The State Pension is usually increased by the cost of living each year.

Another benefit of topping up your State Pension is that it allows you to use up more of your ‘tax free’ Income Tax Personal Allowance in retirement.  

Usually if someone has not paid enough National Insurance contributions they are unlikely to have other retirement savings therefore less income in retirement. A partner may have more of the retirement savings and a full State Pension. 

This means the partner is likely to pay more in Income Taxes. So if there is anything you can do to increase the income of partner with less savings then this is good from a tax point of view. 

Of course with any decision there are downsides. 

These include: 

1. Dying young. You may not get the full value of your State Pension top up if you die soon after receiving your State Pension. 
2. You are giving up a lump sum now for more income on an ongoing basis. This means less flexibility. If you don’t top up your State Pension and keep your lump sum this means you can be more flexible in how you spend that money. 

Due to the sums involved I can’t see many cases where it wouldn’t be a good idea to be topping up your State Pension, however it’s always best to check this fits in with your overall retirement plan. 

If you would like help ensuring you never run out of money in retirement then please schedule a no obligation free 15-minute call.  

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.