Important changes to your National Insurance contributions

AAB Wealth would like to make you aware of an upcoming change to the rules concerning the purchasing of voluntary National Insurance contributions.

A person typically requires 35 full years of National Insurance contributions to be entitled to a full State Pension. In addition to accumulating credits through employment, you may build your entitlement to the new State Pension if you are a parent or a guardian registered for Child Benefit (even if you do not receive it), if you are a carer, or in a number of other scenarios. Presently, with full entitlement, the new State Pension pays £185.15 per week of secure income that is fully inflation proofed, under current legislation, and will continue for the duration of your lifetime.

Until 31 July 2023 [extended from 5 April 2023], it is possible to fill any gaps in your National Insurance record between 2006 and 2016. After 31 July 2023, you will only be able to go back 6 years which, for some people, will not be sufficient to qualify for a full State Pension.

While every person’s situation is different, there are limited scenarios in which receiving a full State Pension would not be preferable. In addition to the secure, inflation-proofed income that it provides, the State Pension is not tested against your Lifetime Allowance, and it reduces your reliance on any other assets that you may have. Purchasing a full year of voluntary contributions costs around £800, and once your pension is in payment, you will recoup the money that you spend in approximately three years.

We recommend that, if you have not done so already since 2016, you can request a State Pension forecast.

It is important not to assume that you will be entitled to the full State Pension, even if you have worked for 35 years or more. There have been many changes to the rules over the years, and it is possible that you have been “contracted out” at some point, suspending your accrual of National Insurance credits.

We suggest that you contact HMRC using the phone number on your State Pension forecast if you do not have 35 qualifying years of National Insurance credits, your record has gaps between 2006 and 2016, and you are no longer working. HMRC will be able to assess whether purchasing voluntary National Insurance credits is appropriate, or whether there is any other way to fill the gaps. As the rules around National Insurance credits are complex, we would recommend seeking advice before proceeding and purchasing voluntary contributions.

For anyone who is a few years short of full entitlement and has the same number of years or more until they become entitled to their State Pension, it is worth noting that it is possible to purchase additional contributions up until State Pension age.

If you have any queries, please get in touch with Claire Marston or your usual AAB Wealth contact.