01 March 2023
Only a few weeks left to plug those NI contribution gaps!
The rules around filling in gaps in your National Insurance (NI) record are changing. From 5th April 2023, you’ll only be able to make voluntary contributions for the past six years. If you have gaps in your record, filling them in now could boost your retirement income.
There are many reasons why you might have gaps in your NI record. These could include –
- time away from work for childcare
- a sabbatical
- travelling breaks
- living abroad
Even if you’ve been in employment throughout your working life, there may still be gaps caused by periods of low income or self-employment.
The rules now
As things stand, you can make voluntary contributions to your NI ‘pot’ and fill in any gaps between April 2006 and April 2016.
The rules from April 2023
From the start of the 2023/24 tax year, you’ll only be allowed to make these gap-filling voluntary contributions to cover the last six tax years.
This means you only have a few weeks to fill in those gaps in your NI record.
Why is it important to plug my NI contribution gaps?
The number of years you’ve paid National Insurance contributions (NICs) can directly affect your income in retirement.
To receive the full State Pension, you’ll usually need 35 years of contributions on your NI record. If you have fewer than 35, then you’ll receive a portion of the full amount. Clearly, it makes sense to fill any gaps in your contributions before the door closes.
Filling the NI gaps – what difference will it make?
The short term cost
It will cost around £800 to pay an additional year of National Insurance contributions.
The long term gain
£800 might seem like a hefty sum. But think about it – just that single payment could boost your State Pension income by around £275 a year! After three years, your extra contribution will have paid for itself. From then on, you’ll be better off year after year.
With the current state pension age set at 66 and life expectancy (for men) being around 85, that extra £275 a year over 19 years would add up to £5,225.
For women? Their average life expectancy is two years greater, so they could expect to receive as much as £5775 - not a bad return on a one-off £800 investment, regardless of your gender!
Don’t jump right in with extra NI contributions
Before making any extra NI payments, be sure it’s the right decision for you. In a few cases, buying extra years wouldn’t boost your retirement income.
Your first step is to use the government’s pension forecast tool to check both
- when you’re due to reach the State Pension age.
- your contributions record.
Let’s say you have 30 years of NI contributions behind you but plan to be working for another 10 years. You still have plenty of time to add those extra five years that you need for the full State Pension. There’s no rush.
Understanding your entitlements
There are instances when you don’t have to worry about spells where you’ve missed your NI contributions. For example, have you ever claimed Child Benefit? Then - until your child reaches 12, you’ll have been credited with NICs.
Have you ever been in the position of being classed as a carer? In this case, claiming Carer’s Allowance can also result in you receiving credits to your NI record.
Beating the NIC deadline – talk to the experts … soon!
We all need to know where we stand – in all walks of life. Our current financial status is no less important than any other walk of life.
If you’re approaching pension age, and are planning to take the state pension, then do be sure to check your National Insurance record before the 5th April 2023 deadline. With the rules around filling in gaps in your NI record changing, this may be your last chance to fill in historical gaps in your employment record.
The potential result? A significant boost to your retirement income.
Your financial security in retirement could depend on the action you take in the next few weeks.
Look out for any discrepancies or shortfalls in your past contributions. Are you absolutely sure that you have sufficient qualifying years?
If you’re not sure, or you just want to talk through your state pension and retirement options, get in touch with us at Haines Watts. We’re always here to help.