Adding an extra year of voluntary contributions costs £907, with cheaper rates for partial years. By making this investment, you’ll receive an additional £5.82 per week on your state pension, which amounts to £302 per year or £6,052 over a 20-year retirement period.
In just a few years, you can break even on this expense. As long as you live for at least three years after reaching the state pension age, you’ll recoup your investment. Moreover, the increasing value of the state pension over time makes it an especially advantageous opportunity.
Although it may seem straightforward, confusion often arises when deciding whether these extra contributions are worthwhile, which years to choose, and the challenges posed by the Department for Work and Pensions (DWP) with their recent poor service.
Typically, voluntary contributions are limited to the past six tax years. However, there is currently a temporary window open until April 2025 that allows individuals to purchase National Insurance credits to fill any gaps between the tax years of April 2006 and April 2016. You can check your National Insurance record here by using your Government Gateway user ID and password.
Helen Morrissey from Hargreaves Lansdown advises, “It is crucial to consult with the DWP to determine whether buying voluntary credits will benefit you. There may be cases where you qualify for credits through benefits like Child Benefit or Universal Credit, in which case you may be able to backdate a claim.”
Determining the correct amount of state pension can be challenging. The widely publicized figures represent the “full” amount, but there are factors that can cause variations in your payments. These include your National Insurance record, retirement date (which determines whether you receive the “new” state pension amount), whether you were “contracted out” of the state pension, whether you receive a spouse’s state pension payments, and whether you started receiving state pension payments immediately upon eligibility.
This complexity has resulted in thousands of people unknowingly receiving less than they are entitled to. Government errors have come to light, with over £500 million in retirement income going unpaid in 2022 alone.
The government is working to rectify these errors, but the process of identifying and distributing owed funds has been slow. Therefore, it’s important to take steps to determine your correct payment amount and what to do if you discover you’re not receiving the full amount you should be.
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