Update 7 March 2023: The deadline to fill National Insurance gaps dating back to 2006 to boost your state pension has been extended as the Government experienced overwhelming demand. See Special state pension boost rule extended amid surge in demand for the details. 

There are just over six weeks left to buy back any missing years in your record from 2006/07 to help you qualify for the full state pension.

Under current new state pension rules (those who retire on or after 6 April 2016 ), 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.

Ordinarily, pension savers can fill in NICs gaps dating back six tax years. This means that 2016/17 would normally be the furthest year which could be revisited in the current 2022/23 tax year.

But until midnight 5 April 2023, special rules are in place allowing you to go back an extra 10 tax years to 2006/07 to plug any gaps.

From 6 April 2023 – the new tax year – it means you can only go back six years.

Plugging National Insurance gaps

If you know you have gaps in your National Insurance record, paying down money now could be beneficial for your pension in the future.

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.

Alice Haine, personal finance analyst at platform and coaching service, Bestinvest, said buying one qualifying year can add up to £275 per year to your pre-tax state pension (1/35 of the full rate of the state pension).

Haine said: “If you live 20 years beyond the current state retirement age of 67, each year bought back could give you up to £5,500 per year to take home, a great return particularly when you consider this is likely to rise in line with inflation. Make up five missing years at a cost of about £4,121, for example, and that could potentially be worth up to £27,500 over a typical 20-year retirement.”

However, she warned: “Anyone with a shortfall in their record needs to act fast as they only have until midnight on April 5 to buy back their missed years to qualify for a full state pension. Failure to do so by the deadline might mean they don’t receive the full pension payment they are expecting.”

Five-step guide to help you decide it it’s right for you

Plugging National Insurance gaps may be beneficial for many, but it won’t be right for all. Bestinvest lists these five-steps for men born after April 5, 1951, and women born after 5 April 1953, to help them decide whether it’s worth making up any missed years before they are lost forever.

1) Check your state pension record

If you had a career break or took time out to raise a family, or maybe you cared for elderly relations, lived or worked abroad, earned a low income or were self-employed and not paying contributions, this could mean you have gaps.

The danger of gaps is that you don’t accrue enough qualifying years to receive a full state pension. While you need to have 35 for the full amount, it doesn’t need to be 35 consecutive years. You just need to reach this target over the course of your working life to receive the full entitlement.

If you’re not at state pension age, check your NIC record via the State Pension forecast calculator, which you can access through your Government Gateway. If you don’t already have a Government Gateway user ID, you can set one up with your name, email address and a password. You must then answer security questions to verify your identity, for which you’ll need your National Insurance number, passport, pay slips or P60.

You will receive a State Pension summary outlining what year you are entitled to receive a state pension with a guide on the amount you will receive weekly, monthly and per year (without factoring in inflation) according to your current and projected contribution level.

The summary also outlines how much you would receive if you continued to contribute and what steps you need to take to improve the forecast if there are any shortfalls.

For those already at state pension age, check the National Insurance record for any incomplete years since 2006.

2) Does filling NIC gaps make sense?

Your State Pension Summary will show how many years of contributions you already have, how many you have left to contribute before you retire and the number of years in which you did not contribute enough. These will be marked as ‘Year is not full’ with guidance on how much you need to pay in voluntary contributions for each year by April 5.

One consideration is how many more years you plan to work. Those aged 45 and over who are close to retirement age and won’t have enough time to achieve 35 qualifying years to receive the full state pension may be more inclined to top up, while someone close to retirement and in poor health might not feel it is worth it.

For younger people, it may not be worth the expense of filling the gaps as they’re likely to hit the 35-year contribution target anyway over the course of their working lives.

Which years you have missed is also key. If you have gaps between the 2006/07 and the 2016/2017 tax years, these will no longer be available to buy back after midnight on April 5, so prioritise them first.

Ultimately, any potential gain from buying voluntary NI contributions will be wiped out if your health is poor and you are unlikely to live long enough to benefit – with the breakeven point for buying back one year to make financial sense three years after you start claiming your state pension.

There are also lots of complexities to consider. If you are a higher earner, for example, it might not be worth topping up your NI record as it could tip you into a higher tax bracket when you receive your state pension income taking you longer to break even on voluntary top ups.

3) Get advice before making a decision

Calculating whether to top up can be confusing and if you pay for more than you need, you won’t get that money back.

The best solution is to call the Government’s Future Pension Service on 0800 731 0175 to double check how many years you can buy and whether voluntary contributions will add to your state pension. Those who have already reached pension age must contact the Pension Service on 0800 731 0469.

What you might find when you chat to a government pension expert is that you have more years built up than you realise as you can also build up NI years for free by acquiring tax credits, child benefit and being on statutory sick pay, to name a few scenarios.

4) How much will it all cost? 

For most people the cost to make up a full year by 5 April is £824.20 for gaps between 2006/07 to 2019/20. For the most recent two years, the rate is slightly less at £795.60 for 2020/21 and £800.80 2021/22. This rate of NIC is known as Class 3.

However, people pay different rates depending on their situation. While those in full employment pay Class 1 NIC which are based on earnings and automatically deducted by their employer, the self-employed pay Class 2 and 4 based on their taxable profits and those living abroad pay Class 2.

Class 2 is considerably cheaper at about £160 for one year than Class 3, so when you consider that one qualifying year of NI adds about £275 a year or £5.29 a week to your state pension for the rest of your life – it’s easy to see the value of buying back those missed years.

For someone who was living abroad during their missed year, they need to download and complete HMRC’s CF83 form and send it to the address on the form. To qualify for Class 2 NICs, you will need to prove you lived in the UK for at least three years in a row or paid NICs for at least three years before you left the UK and give the names and addresses of the employers you worked for during your time overseas.

Meanwhile, for those who have retired abroad, they must pay Class 3 NI rates for any missed years.

5) Making the payment

Once you have decided how many years to top up and which ones exactly, contact HMRC to find out the cost and how to get the 18-digit reference number you need to actually make a payment and ensure the sum is recorded on your NI record.

This number can be given to you over the phone or sent by post but allow at least two weeks for this to come through by mail. Once you have the 18-digit number, paying for the missed years can be done by online bank transfer, from a bank at your bank or building society or paid for by cheque to HMRC.

With the clock ticking, anyone looking to make up the shortfall should start the process straightaway to ensure you make up those missed years before it is too late, Haine added.