It is probably best if you divide into two groups and line up on either side of the room.
Those who reached state pension age before April 6, 2016 and who already get the state pension under the previous rules (old state pension) to one side. And those who reach state pension age after April 6, 2016 – so come under the new state pension rules – to the other.
The dividing birthdates are April 6, 1951 or later for men and April 6, 1953 or later for women: they get the new state pension (newbies). People born before those dates get the old state pension (oldies). The rules for the two groups are very different. So make sure you read the right part. And then come together to read the important bit for both oldies and newbies at the end.
Skip to the part for newbies.
Oldies – old state pension
Valid for: Men born before April 6, 1951 and women born before April 6, 1953
You need 30 years of National Insurance (NI) contributions to get a full state pension. Reduced rate contributions paid by some married women in the past do not count.
If you have fewer than 30 years of NI contributions it may be possible to pay some extra now to fill that gap. These are called Voluntary Class 3 Contributions. But the rules are strict, complex and can seem unfair.
You cannot normally fill very old gaps. Generally you can only pay back contributions due up to six tax years ago. So now, in 2015/16, you can fill gaps back to 2009/10. If you missed earlier years, then you cannot normally pay them.
Will you lose out under the new state pension rules?
The rules are more generous for some
However, there are more generous rules for some, who can fill an extra six years going right back to 1975. These are men born April 6, 1944 to April 5, 1950 and women born April 6, 1949 to October 5, 1952. They all reached state pension age between April 6, 2010 and April 5, 2015.
They must already have at least 20 years of NI contributions – paid or credited. If that’s you, you have six years from when you reached state pension age to make the contributions. So some of the oldest in this group will miss out.
The cost is £733.20 for each year you pay. In exchange, you will get extra pension of around £200 a year from the date you pay. So the payback time is less than four years.
People in this category can also pay to fill gaps back to 2009/10. But only for years before they reached state pension age.
It is worth paying only enough contributions to ensure you have 30 years. Paying for extra years after that does not increase your pension.
When you fill a gap in your National Insurance record, the extra pension you get is basic state pension and will rise by at least 2.5% a year until April 2020.
Could you boost your income by deferring your state pension?
Newbies – new state pension
Valid for: Men born April 6, 1951 or later and women born April 6, 1953 or later
If you are young enough to get the new state pension, the rules about topping it up are completely different.
You need 35 years to get a full pension. Reduced rate contributions paid by some married women in the past do not count. If you have fewer than 35 years then you will get a lower pension.
For example, with 30 years – enough for a full pension under the old rules – you will get 30/35ths of the full new state pension. If the new state pension is £151.25 – it will be at least that – then you would get a pension of £129.65.
If you have gaps in your National Insurance record, you may be able to fill some. But the rules are very strict and many people with too few contributions – especially women – will be unable to do so.
Voluntary Class 3 National Insurance contributions
You can pay voluntary Class 3 National Insurance contributions back to 2006/07. You cannot fill gaps older than that.
The cost depends on how old the contributions are. Each tax year from 2006/7 to 2009/10 will cost £689. Contributions to fill gaps after that may be a little more or a little less. Each year’s gap you fill will boost your pension by around £225 a year. So the payback period is about three years.
The extra pension you get is part of your new state pension and should rise each year by at least 2.5% until at least 2020. There is usually no point in buying extra contributions if you have 35 years because filling gaps before 2016/17 will not increase your pension. Contributions for later years may do so. If you do buy extra contributions, you have until at least April 5, 2023 to do so. But they may be more expensive if you buy them after April 5, 2019.
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Oldies and newbies
Before buying extra contributions, make sure you have been credited with contributions for years you spent claiming child benefit for your children, acting as a carer, looking for work, or claiming some disability benefits. Those rules are too complex to explain here; check with HMRC and DWP.
You can’t fill a gap in years where you paid the lower married woman’s National Insurance contribution. Any extra pension you get will be taxable. It may also reduce your entitlement to means-tested benefits such as pension credit, housing benefit or council tax support.
Research your options
The rules described in this article are highly complex and it is important you research the options and get further information from HMRC before committing to buy extra contributions.
Further information: Visit gov.uk or call the Pensions Service special voluntary contributions hotline on 0345 604 2931.
To check credits on your NI record, go to gov.uk/national-insurance-credits or call 0300 200 3500.
Paul Lewis writes a monthly column for Saga Magazine. Subscribe here.