The cost of topping up State Pensions is going up - 5 April 2019 deadline
If you don’t read anything else…….
- The rate of voluntary Class 3 National Insurance Contributions is increasing to £15 a week from 6 April 2019.
- If you wish to pay voluntary contributions to top up your State pension entitlement, you may wish to do so by 5 April 2019 as this could save you a great deal of money, particularly if you are paying in respect of several previous tax years.
- You should consider acting promptly to save yourself some money.
The rate for payment of Class 3 National Insurance Contributions (NICs) is increasing. So if you are looking to pay voluntary Class 3 NICs to fill any gaps in your contribution record between April 2006 and April 2017 on or after 6 April 2019, you will be charged the new higher rate of £15 per week.
If you wish to pay the Class 3 NICs to top up your record for previous tax years then this could be done at lower rates if you pay by 5 April 2019. Depending on the tax years you are looking at, taking action by 5 April 2019 could give you a saving of up to 11.7% compared to the new increased rate of £15 per week from 6 April 2019. If you are making up contribution gaps for several previous tax years, acting by 5 April 2019 could save you hundreds of pounds.
Issues to consider
- Do you have gaps in your NIC record which mean you will not qualify for a full State pension?
- If so, you can usually pay voluntary Class 3 NICs to top up your record for up to the past 6 tax years. You may be able to go back further than 6 tax years depending on your age.
- Even if you do have a contribution gap you do not necessarily need to pay top up NICs.
- Suggested next steps.
Do you have any gaps in your NIC record?
The first thing to do is check if you have any gaps in your NIC record and if they will mean you won’t have enough ‘qualifying years’ to entitle you to a full State pension. You can check your record by visiting www.gov.uk. There you can find out if you do have any gaps (currently up to 6/4/2018), if you are eligible to pay voluntary contributions, and how much it may cost you to fill the gaps.
Don’t forget that you may also qualify for NIC credits, depending on your circumstances. If this applies to you, you won’t need to (be able to) pay voluntary NICs to fill gaps in your record for tax years in respect of which you will get NIC credits. You may need to apply for them, as not all NIC credits are given automatically. To find out more visit www.gov.uk.
Paying voluntary Class 3 NICs to top up your record
If you do have gaps in your NIC record which will impact the amount of State pension you will receive, you then need to find out if paying voluntary Class 3 NICs will increase the amount of State pension you will receive. This is not always the case.
To find out if you’ll benefit by paying voluntary NICs to top up your State pension you should contact www.gov.uk. Their helpline number is 0800 731 0175.
If you are eligible to pay voluntary Class 3 NICs, and your State pension amount would benefit from doing so, you can find out how to make such payments by visiting www.gov.uk.
Do you need to pay voluntary NICs?
To receive the full rate of State pension you will need 35 ‘qualifying years’. To receive a reduced State pension, you will need a minimum of 10 ‘qualifying years’.
There are various reasons why you may have a gap in your NIC record and don’t have enough ‘qualifying years’ to be eligible for the full rate of State pension.
As above, you may be entitled to receive NIC credits for some tax years (for example, if you were caring for someone full-time) and so you will not need to pay voluntary NICs to top up your record for those years. Your NIC record will show any NIC credits given. In some circumstances you may need to apply for them.
For those reaching State Pension Age after 6 April 2016, your past record may have gaps in your ‘qualifying years’ because you may have been contracted out of the Second Tier State Scheme that was in place up to that date. Remember that in years where you were contracted out of the Second Tier State Scheme (sometimes referred to as SERPS and/or State Second Pension) then you will have a replacement pension entitlement in either a previous employer’s pension scheme, or your own personal pension policy used for contracting out.
Just because you may have a gap in the number of ‘qualifying years’ to achieve a full State pension, it does not mean that you have to pay voluntary NICs to fill the gap. The decision is yours, but best to carry out the checks suggested above before deciding. You may also wish to obtain financial advice.
Suggested next steps
As with most things related to your retirement planning, much will depend on your past record, your circumstances and your priorities/preferences. However, if you do wish to make voluntary NIC payments to top up your State pension entitlement then we suggest prompt action.
Actions to consider (using the links and contact details provided above):
- Check your past NIC record and look for gaps in your NIC ‘qualifying years’ that will count towards your State pension.
- Check whether you are entitled to any NIC credits and need to apply for them.
- If there is a gap, and this will not be filled by your future NIC record, then find out if paying voluntary NICs will help to improve the amount of State pension you will receive.
- Armed with the above information, you should then decide if you do in fact wish to make any voluntary NIC payments and, if so, if you will do so before or after 5 April 2019.
- Acting before and making the payment by 5 April 2019 could save you a significant amount of money.