Is it worth paying for a bigger state pension?

In a new series, we answer YOUR burning money questions…

Since turning 60 last year, I’ve started to worry that I won’t get the full state pension as I don’t have 35 years of National Insurance contributions. 

I know I can ‘buy’ these missing years to boost my payout – but is it worth spending a lump sum now to get more each year? M.B., Yorkshire 

Rachel Rickard Straus replies: The state pension forms the bedrock of most people’s retirement income, but not everyone receives the full amount. If you have not paid sufficient National Insurance contributions over the years, you may receive a lower monthly sum. 

The full state pension is worth £185.15 a week. Since 2016, it is paid to people who have 35 qualifying years of NI contributions. 

If you have fewer years, you receive a lower amount, in proportion to what you have paid in. For example, if you have made 20 years of contributions, you will receive 20/35th of the full state pension – or £105.80 a week. If you do not have 35 years of contributions – maybe because you took a long break from work to start a family or lived for a while overseas – you may be able to ‘buy’ extra years of NI payments.

So what does it cost exactly? 

If you want to add the equivalent of one year’s NI contributions, it’ll cost you around £824. 

You may also have the option to buy a partial year in which you’ve already paid some NI contributions, but not enough for it to count towards your state pension record. This will be cheaper than buying a full year. At the moment, a payment of around £824 will add £5.29 a week to your state pension – £275.08 a year. So, you will have earned back the payment in around three years. 

If you enjoy a long retirement, it will represent a good deal. A 65- year-old who retired in 2017 is expected to live on average for another 22 years. If they topped up their record by one year today, they would receive an extra £4,676 over the years for a cost of £824. For most people who have gaps in their employment history, buying the top-up is a good idea.

Is there a catch? 

You should make top-up payments within six years of missing the original payment. The state pension was modernised in 2016 to simplify the payments system – and with it the way in which entitlements are calculated. To ease the transition, you have until April next year to pay for any gaps between the tax years ending April 5, 2007, and April 5, 2016. 

Under the old system, people often have lower state pensions because they were what is known as ‘contracted out’. In these cases, buying state pension top-ups will not boost your income. Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, explains: ‘Contracting out is where you gave up entitlement to the additional state pension in return for lower NI contributions for you and your employer. In return you would get extra contributions to your workplace pension instead. 

‘This was often seen as providing a better deal than staying in the additional state pension. It is a complex area and you don’t want to spend money unnecessarily – so check your state pension forecast and then speak to the Department for Work and Pensions about how best to plug any gaps.’

Can I do it for free? 

Quite possibly. There are many activities apart from work that should earn you qualifying NI years, but not all of them are registered automatically. 

Think about why you have gaps in your NI records and whether they may qualify you for free state pension top-ups. For example, you may be eligible because you cared for a grandchild who was under the age of 12, or cared for a sick or disabled person for at least 20 hours a week. Other triggers for free pension top-ups include being a foster carer at any time since 2010 and if you were a juror on a long-running case. You can check your NI record at gov. uk/check-national-insurance-record or by phoning Revenue & Customs on 0300 200 3500. 

How to get started

First, you need to find out how many qualifying years of NI contributions you have. You can do this online at gov.uk/check-state-pension. Here you will find out how much state pension you should get, when you can get it and whether or not you can increase it. You can also phone the Government’s Future Pension Centre on 0800 731 0175 or write to them at: The Pension Service 9, Mail Handling Site A, Wolverhampton, WV98 1LU.