Special state pension boost rule extended amid surge in demand
Taxpayers had been given until 5 April 2023 to plug National Insurance gaps beyond the usual six-year limit, helping them to get as much of the new state pension as possible.
However, HM Revenue and Customs (HMRC) and the Department for Work and Pensions (DWP) today confirmed they have experienced a surge in customer contact wanting to use these special rules ahead of the deadline.
As such, to ensure people don’t miss out, the Government has extended the 5 April deadline by more than three months to 31 July 2023.
Further, the voluntary National Insurance Contribution payments will be accepted at the existing 2022/23 rates until 31 July 2023.
National Insurance Contributions to boost state pension
Under current new state pension rules (affecting 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 (currently £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 in a bid to boost their retirement income from the state. This means that 2016/17 would normally be the furthest year which could be revisited in the current 2022/23 tax year.
However, special rules – part of the transition from the basic to the new state pension – applied until midnight 5 April 2023 allowed taxpayers to go back an extra 10 tax years to 2006/07 to plug any gaps.
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.
According to pension consultancy Lane, Clark & Peacock, this could add £5.29 a week or around £275 a 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 topping up a further ten missing years of NICs would need to stump up £8,242 (ten lots of £824.20), but their annual state pension boost would be around £2,750.
If you consider this over a twenty-year retirement, pensioners would get back around £55,000 in total (before tax) for a one-off payment of a little over £8,000, LCP said.
LCP partner and former pensions minister, Steve Webb, said: “For many people, paying voluntary NICs can be great value for money and can help them boost their state pension in a cost-effective way.”
He added: “This is great news for people thinking of topping up their state pension. For most people, paying voluntary NICs to deal with a shortfall in their state pension makes excellent financial sense. But it is also important to make sure that extra contributions are right in your individual case as sometimes additional contributions may not boost your pension. People need time to talk through their options with DWP and then make the correct payment to HMRC and this extension to the deadline should give them time to do this. The Government is to be commended for listening to the calls to extend the deadline”.
See YourMoney.com’s State pension boost tips to help you work out if it could work in your favour.
Concern over original state pension boost deadline
The Government said the extension comes after “members of the public voiced concern over the previous deadline of 5 April 2023”.
Now HMRC and DWP urge people not to miss out as they’re given more time to decide whether it’s worth filling in previous gaps to boost the new state pension.
Victoria Atkins, the financial secretary to the Treasury, said: “We’ve listened to concerned members of the public and have acted.
“We recognise how important state pensions are for retired individuals, which is why we are giving people more time to fill any gaps in their National Insurance record to help bolster their entitlement.
“Thousands of taxpayers with incomplete years in their National Insurance record could be financially better off in their retirement if they make voluntary payments to top up any incomplete or missing years.”
You can check your National Insurance record here, as well as via the HMRC app or the Personal Tax Account. You can get a State Pension forecast here and decide if making a voluntary National Insurance contribution is worthwhile.