AT Future Life Wealth Management, we get a lot of clients asking us about their State Pension... and specifically about filling gaps in their record ahead of state pension age.

Recently the Government put in place a pension top up offer by extending the period in which an individual can fill gaps from six years by an extra decade.

This means you can buy missing years dating back to 2006. 

The concession was initially going to run until April 5, 2023, but the DWP phone lines have gridlocked by those taking advantage…

So, the government has been forced to step in and have extended this until July 31.

We have put together a handy guide on how to boost your State Pension should you have any missing years and how to take advantage of the one-off window to boost your State Pension.

Summary of the State Pension

The State Pension is currently paid from age 66. 

This will gradually increase to age 67 by 2028 and is expected to increase further.

Plans to bring forward the State Pension age rise to 68 far earlier than the initially intended age of 2044 to 2035 has been put on hold amid fears of a backlash from middle-aged voters.

It has been reported that ministers have now decided to delay a decision until after the next general election, expected in little over a year’s time.

Not everyone gets the same State Pension. 

The amount you will receive will depend on how many years you have worked and paid National Insurance contributions, your type of employment and your earnings.

There are two types of state pension.

The 'basic' state pension for those who reached pension age before April 6, 2016, and the new 'flat-rate' state pension is paid to those who reach pension age after April 2016.

Those on the ‘basic’ state pension needed 30 years of National Insurance contributions to qualify for the full amount of £141.85 a week (increasing to £156.20 in April 2023).

There were various top up schemes available over the years to boost this pension, including ‘contracting out’ and the second state pension.

Those on the 'new' state pension need 35 years of National Insurance contributions to get the full amount of £185.15 a week rising to £203.85 in April.

Why there may be gaps in your record…

There are a number of reasons by you may have gaps in your State Pension record. 

Currently you need to earn more than £242 per week before you pay National Insurance so any period of part time work or lower paid employment could be a factor, along with working abroad, taking time out of work to raise children or caring for an elderly or disabled relative.

The DWP keeps a log of all National Insurance Contributions you pay throughout your life and calculates your state pension entitlement from that.

How to boost your shortfall

For those already receiving state pension, there is nothing further you can do to boost your state pension.

For those who haven’t reached pension age yet, it’s worth noting that some gaps in your NI record can be covered by ‘credits’. 

During periods of unemployment or raising children can qualify for these credits towards the State Pension.

These credits can be backdated and it’s also worth noting the 'grandparent credit' available to those who assist a parent of a child being able to work due to caring for family member under the age of 12.

You may qualify if the parent of a child is working, receiving child benefit and paying National Insurance contributions. 

This does not need to be full-time care but could include, for example, dropping off at school or cover during school holidays.

There are limits on credits, including those associated with child benefit which can only be backdated three months and it is important that you claim these credits at the time of caring for children.

If you still have gaps in your record, you can boost your State Pension by buying missing years.

For the most common types of workers such as those who are employed (i.e. those on Class 3 contributions), the cost is £15.85 for each week missed, meaning a total cost of £826.50 to fill an entire missing year.

For those who are self-employed and pay Class 2 NI contributions, the cost is far lower at £163.80 a year, meaning it costs much less to fill in gaps in a record but generates the same boost in the state pension.

The deadline to boost state pension

Usually, you can only fill gaps in your NI record from the past six years but a concession has been granted by the government to allow savers to buy missing years to 2006. 

You have until 31^st July 2023 to apply for this offer!

From August 1, the rules will once again only permit backdating for six years, so anything missing between 2017 onwards.

How much does it cost to buy extra income?

For example, if you have one week’s worth of missing NI payments then it will cost just £15.85 to fill that gap but means that you will receive an extra £5.84 of state pension a year meaning that you receive an extra £116.80 over a 20-year retirement.

If you have one year’s worth of missing NI payments then it will cost £824 to fill that gap but means that you will receive an extra £303 of state pension a year meaning that you will receive an extra £6,060 over a 20 year retirement.

If you have five years’ worth of missing NI payments then it will cost £4,121 to fill that gap but means that you will receive an extra £1,514 of state pension a year meaning that you will receive an extra £30,280 over a 20 year retirement.

And finally, if you have 16 years’ worth of missing NI payments then it will cost £13,187 to fill that gap but will mean that you will receive an extra £4,848 of state pension a year meaning that you will receive an extra £96,960 over a 20 year retirement.

The above figures are all based on the new state pension from April

Is the top up good value for money?

At current top-up rates, you need only to live four years after reaching pension age before the extra income you've gained covers the up-front expense. After that, your investment is essentially turning you a profit.

It would cost a little over £8,000 to fill a ten-year gap, but it would result in a £60,560 boost over a 20-year retirement, based on the state pension from April.

Taking advantage of the current concession, allowing you to buy up to 16 years of state pension, you may be able to boost your state pension income by £96,960 over the next 20 years at a cost of £13,187.

In fact, the actual amount you would receive is even greater as the State Pension rises with inflation every year, under the triple lock.

This guarantees that the payments increase by the highest of inflation, wage growth or 2.5%. 

The long you live into retirement, the more profitable this deal becomes.

The State Pension is rising by 10.1% on April 10, 2023, in line with September 2022’s inflation prices. 

How to apply for the top up

The first step is to check your NI record for gaps.  

You can do this online via www.gov.uk/check-national-insurance-record. 

You will need to set up a Government Gateway ID if you don’t already have one.

If you have missed any years between now and 2006, your next step is to check your State Pension forecast which can also be obtained here www.gov.uk/check-state-pension via your Government Gateway ID or by contacting the Future Pension Centre on 0800 731 0175 who should be able to give you an immediate answer over the phone and advise you of the years you are eligible to make extra contributions for and if you will benefit.

Making the top up payment

Once you know exactly how much you need to pay and the years you wish to cover, the payment can be made to HMRC.

You will need a reference number for the payments which you can obtain by contacting the National Insurance Helpline on 0300 200 3500.

An adviser will confirm how much you would need to pay per year and give you an 18-digit payment reference.

You can then make the payment via your online banking through www.gov.uk/pay-voluntary-class-3-national-insurance/approve-a-payment-through-your-online-bank-account.

By selecting the 'pay by bank account' option, you’ll be directed to sign into your online or mobile banking account to approve your payment.

You can also send a cheque in the post to: HM Revenue and Customs, National Insurance Contributions and Employer Office, BX9 1AN.  You must include your name, address and phone number, your Class 3 NI contributions reference number (or NI number), how much you're paying and the period you're paying for.

Is a pension top-up ever a bad idea?

There may be instances where trying to top up your state pension is not beneficial, even if you have missed years.

For example, if you expect to have 35 years of full NI contributions by the time you reach pension age, making voluntary contributions will be of no benefit as it won’t increase your State Pension any further.

The same applied if you have already built up 35 years of full NI contributions which is why it is crucial that you check your entitlement and speak to the National Insurance helpline before acting.

In some circumstances, those who ‘contracted out’ may also not be able to plug any gap for missing contributions in those years.  Those who were paying into a 'contracted out' pension has their saving in NI contributions paid into a company pension instead to effectively replace part of their state pension.

As a result, they are on track to receive a smaller sum from the state, but a larger sum from their private/workplace pensions. Contracting out ended in 2016.

Making extra voluntary NI payments for years during which you were contracted out will have no effect on your state pension as it will not be possible to boost the amount you receive to the full flat rate.

To find out whether you were contracted out at any point, you can check old payslips or ask your pension provider.

On old payslips, if the NI contribution line has the letter 'D' or 'N' next to it, that means you were contracted out.

The letter 'A' means you fully paid your contribution for that year.

Those who worked in the public sector and saved towards a 'defined benefit' pension, which provides guaranteed income in retirement, are more likely to have been contracted out.

You will also be able to tell if you have been contracted out if your state pension forecast includes a 'Contracted-out Pension Equivalent', also known as COPE.

This indicates how much will be deducted from your income as a result of being contracted out.