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National Insurance deadline: Last chance to pay £8k for £55k pension boost

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A special National Insurance credit window will close soon, with retirees urged to check and apply before the deadline to avoid missing out on ‘the best investment returns you could ever make’.

For those who retire on or after 6 April 2016 (new state pension system), there’s a way to boost your state pension by £55,000 by paying £8,000 to fill in any gaps in your National Insurance record.

Under current rules, retirees need at least 10 years of National Insurance Contributions (NICs) to qualify for a state pension, and 35 qualifying years to receive the full amount (£185.15 a week). Those with less than 10 years of contributions will not receive any state pension at all.

If you’re coming up short because of breaks in your NIC record, under normal rules you can fill in gaps dating back six tax years. This means that 2016/17 would normally be the furthest year which could be revisited in 2022/23.

However, special rules only in place until 5 April 2023 mean people can go back an extra 10 years to fill in gaps for any year from 2006/07.

Pay £8,000 for a £55,000 pension boost

According to pension consultancy, Lane, Clark & Peacock, in some cases, buying back missing years can be “extremely valuable”.

The current cost of voluntary Class 3 NICs is £15.85 per week or £824.20 per year. This one-off lump sum payment can add up to 1/35 of the full rate to your eventual state pension.

It explained that as the state pension is currently £185.15 per week, this boost is worth £5.29 per week or around £275 per year.  Someone who gets this boost for at least four years will recover their initial outlay (net of basic rate tax) with everything beyond that being profit.

In an extreme case, someone who missed the deadline would lose the chance to top up a further ten missing years of NICs (from 2006/07 to 2015/16 inclusive). Although they would need to stump up £8,242 (ten lots of £824.20), the annual state pension boost would be around £2,750.

Someone who was retired for twenty years would get back around £55,000 in total (before tax) for a one-off payment of a little over £8,000, LCP said.

National Insurance Contributions and state pension boost: right for you?

However, it cautions that anyone thinking of topping up their state pension for these earlier years must check with the Future Pension Centre at DWP before making such contributions.

“This is because there are some situations in which paying historic contributions would not boost your state pension. This could be particularly true for those who are short of a full state pension because of extensive periods of ‘contracting out’”, it said.

As such, LCP has launched a State Pension Boost website and tool to help people understand the rules and know where to find details of their NI record and pension forecast.

‘Great value for money’

LCP partner and former pensions minister, Steve Webb, said: “For many people, paying voluntary NI contributions can be great value for money and can help them boost their state pension in a cost-effective way.

“For people with gaps in their NI record going back more than six years, the window to fill those gaps will soon close. Some people have gaping holes in their NI record and this will be the last chance to fill them.

“Although topping up is not the right answer for everyone, and people should always check with DWP before handing over any money, for some people, this could be by far the best rate of return they could get on any spare capital. Missing out could cost some workers thousands of pounds.”

Related: National Insurance gaps: How to pick the best years to boost your pension.

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