Early-retired urged to review state pension top-up options

People who stopped working before they reached state pension age can top up their national insurance record to get a full state pension

Hundreds of thousands of people who have stopped work before state pension age are being encouraged to review their national insurance contribution (NIC) record for 2017/18. The call comes from mutual insurer Royal London, which says people should check whether they can now top up their state pension at heavily subsidised rates.  

Under the new state pension, which was introduced in April 2016, retirees who were short of a full state pension as at 6 April 2016 can top up their pension by voluntary contributions in 2016/17, 2017/18 and subsequent years until they reach pension age or until their pension reaches the full flat rate amount of £164.35.  

A year of voluntary Class 3 NI Contributions costs a lump sum of £741 for 2017/18 and will add £244 per year to the state pension income through retirement. Therefore, someone who draws a state pension for just four years will get back more than they put in. 

According to Royal London, 2017/18 will be a qualifying year if you:

  • Were working through the year and paying NICs on earnings of £157 per week or more;
  • Were working through the year and earning more than the Lower Earnings Limit of £113 per week and being credited with NICs;
  • Were receiving NI credits because of receipt of a qualifying benefit, including carers allowance or child benefit for a child under 12; 
  • Had successfully applied for NI credits for particular groups, such as certain grandparents, certain carers etc.
  • Were a man close to pension age who receives ‘automatic credits’ for being above women’s state pension age for the whole year;

Steve Webb, former pension minister and current director of policy at Royal London, says: ‘Many hundreds of thousands of people who are not going to get a full state pension of £164.35 could boost their pension prospects by paying heavily subsidised voluntary NI contributions.’  

He continues: ‘If you asked an actuary what would be a fair price for an extra £240ish per year of pension for a whole retirement they would probably come up with a figure substantially in excess of the £740ish lump sum for a year of class 3 NICs.’

‘Now that 2017/18 is over, it is time for those who did not build up a qualifying year towards their pension to review whether to pay voluntary contributions for that year.

‘This will be particularly relevant to people who in the past were in pension schemes which were contracted out of part of the state pension system, and who will not otherwise get a full state pension as a result.’

You can check your NI record and state pension here: https://www.gov.uk/check-state-pension


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