The government’s decision to extend the voluntary National Insurance deadline to 31st July 2023 has been welcomed by retirement experts but will not benefit everyone.
The government said the extension will give taxpayers more time to fill gaps in their National Insurance record and help increase the amount they receive in State Pension. It follows public concern over the previous deadline of 5 April 2023.
Anyone with gaps in their National Insurance record from April 2006 onwards now has more time to decide whether to fill the gaps to boost their new State Pension. Any payments made will be at the lower 2022 to 2023 tax year rates.
In a statement published on Tuesday, 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.”
Jon Greer, head of retirement policy at Quilter, said: “It is commendable that the government has listened to concerns from the public and industry and has extended this golden opportunity for people to fill gaps in their National Insurance record and top up their state pension.
“An extra three months will hopefully mean that people who might have struggled to get through to the Department for Work and Pensions and HMRC to top up can now try again and take advantage of what is a fantastic opportunity for people to boost their retirement income. It will also give others more time to decide to save up and take advantage of making these contributions.”
A Freedom of Information request by Quilter found that over the last five years only an average of 123,000 people per year have made Class 3 National Insurance Contributions.
Under normal rules it is only possible to fill gaps in an NI record up to six years after the year in question. However, the government gave people until 5 April 2023 to go back an extra ten years, with this date now extended until the end of July.
According to the latest data from the Department of Work and Pensions, as of March 2020, 34% of the over 11 million people who receive the Basic State Pension did not receive the full amount equating to nearly 3.8 million people. Similarly, around 805,000 people don’t receive the full New State Pension, equating to 55% of the nearly 1.5 million people who receive this type of state pension.
According to Quilter, someone with ten missing years could pay a little over £8,000 to fix the gaps and boost their state pension income by £55,000 over a typical 20-year retirement.
The retirement specialist urged people to use the “State Pension forecast” to see how much state pension they will receive based on their current record.
Tom Selby, head of retirement policy at AJ Bell, called the government’s announcement a “pragmatic and welcome step”, but warned that people would need to think carefully about their decision.
Selby said: “While some of the jargon and complexity involved might be off-putting, boosting your state pension entitlement can deliver significant financial benefits.
“Based on someone increasing their entitlement to the ‘new’ state pension – worth £185.15 per week in 2022/23- that could result in an income boost of £5.29 per week or £275.08 per year.
“What’s more, that income will be protected by the ‘triple-lock’, meaning it rises every year by the highest of average earnings, inflation or 2.5%. Broadly speaking, anyone who increases their state pension on these terms will need to live 3-4 years in order to be in ‘profit’ from the deal.
“Given average life expectancy at state pension age is around nine years for men and 11 years for women – with a decent chance of living into your 90s – those in good health who can boost their state pension could benefit handsomely by doing so.”
However, Selby said buying extra NI contributions would be a waste of money for younger people and pointed out that those who have had gaps in employment due to caring for children or elderly relatives may be entitled to NI credits which give them the same entitlement to the state pension as voluntary NI contributions at zero cost.
Selby also urged people to consider the income tax ramifications.
He explained: “It’s also important to remember that your state pension will count towards your income tax bill. That means that by increasing the value of your state pension, you could also push yourself into a higher income tax bracket.
“Where this is the case, the benefit of buying extra state pension years will effectively be lower and so it will take a bit longer to ‘break even’.
“In many cases it will still be worthwhile to buy extra NI years, but you should take the time to fully think through the financial implications.”
