Martin Lewis has recently shared advice on the state pension and the rules around voluntary National Insurance contributions
Martin Lewis opened up on a state pension ‘exception’ rule after a question was put to him by a listener recently. The money expert looked at the matter of the state pension and the rules around eligibility when you retire.
In the UK, you must have at least 10 qualifying years on your National Insurance (NI) record to receive any new State Pension. To get the full amount, you require around 35 years. A qualifying year on your NI record can be gained by working and paying National Insurance contributions. It can also be obtained through alternative means.
A qualifying year can come from receiving National Insurance credits – for instance, if you were unemployed, ill, or a parent or carer. You may also qualify if you have lived or worked abroad, or paid a reduced rate of National Insurance as a married woman.
However, the area Martin concentrated on was the alternative route to securing a qualifying year on your NI record – namely the payment of voluntary National Insurance contributions, reports the Mirror.
Martin tackled the subject on a recent BBC podcast after a listener put a question to him. Holly asked for his guidance on whether she could pay to fill certain gaps in her National Insurance contributions.
She explained that she was thinking about paying to fill two years of gaps in order to bring her total qualifying years up to 10. Having worked abroad for a number of years and spent some time in education, she put the question to him directly: “I am currently 36. Is it worth paying the two now or would it be considered a waste of money as I am likely to reach the 35 years needed for a full state pension anyway?”
Martin Lewis’s advice on paying for National Insurance contribution gaps
Martin opened by saying: “That’s a really interesting question.” He then went on to weigh up her options before reaching two key conclusions — and what he told Holly offers valuable guidance for anyone who is thinking about addressing gaps in their state pension record.
He said: “The first thing I’d do is I’d go and look at your pension projection. On your pension projection, your state pension projection, which is on gov.uk, are you predicted to be able to get that you will have the full state pension when you retire, which is a very long time away?
“If you are, I think this is probably overkill, because it’s not like once you get to the full state pension, you earn more NI years, you get even bigger than the full state pension. It doesn’t work like that.”
That was his first point. Even so, he continued to set out a scenario in which topping up those gaps could, in certain circumstances, prove to be a worthwhile investment.
He observed that many older people complain about already having adequate contributions for their full state pension, asking “why do I have to keep paying National Insurance?”
He said: “It’s because National Insurance is a tax in reality. It’s also a tax that happens to be demarked as your contributions towards getting a state pension once you are older.
“So if you are on for the full state pension, then you probably don’t need to do this.”
‘Exception’ rule where it’s worthwhile paying for gaps at a younger age.
Martin added: “The only time I would make an exception on that is if you could buy these years really, really cheaply. If any of these are part years – so a part year is where you have almost got all the contributions you need to get a year but you are not quite and it’s binary. I know people who have been able to buy a part year for £15.
“Normally it’s going to cost you, a full year, in the 900ish pounds. But if you could buy a part year for 15, 20, hey maybe 50 quid, even at your age, just in case somethng happens in future, as you can only buy back a certain amount – 6 years – I’d be tempted to go, you know what, it’s 50 quid, I’m just going to do it, just on the off-chance that I might need it at some point in the future.
“But if you are having to pay the full £950 for it, I’d probably be thinking it wasn’t worth it. You are so young at 36 for doing this. There are a lot of risks that you’re just going to be buying money, throwing stuff away – there are big risks for you that the state pension might become means-tested once you are older.
“We don’t know that. I don’t think that’s going to happen imminently for people retiring now. But you are talking about retiring in 30-35 years. Who knows what will be happening in the UK to state pensions in 30-35 years.
“So there are a lot or risks in this in doing it now. If you are on to get the full state pension, I probably wouldn’t be doing it – other than if you can get a year really cheaply, so it’s beer money-type costs, where you may as well do it just as a safety net in case there’s a year where you don’t work in the future and you wouldn’t be able to get it, and this would be a really cheap way to buy it.”
He finished by advising that if she remained keen to go ahead, she ought to take her time to think it through carefully and obtain guidance from the government before making any decisions. You can listen to the full podcast here.
What are the rules on paying for National Insurance record gaps?
Gaps can emerge in your National Insurance record if you do not pay National Insurance. According to the gov.uk website, this might be because you were:
- living or working outside the UK
- unemployed and were not claiming benefits
- self-employed but did not pay contributions because of small profits
- self-employed but did not pay contributions because of small profits
- getting National Insurance credits for less than a full tax year
- employed but had low earnings
The Government recommends that you examine your National Insurance record in order to identify any gaps. This allows you to establish what it would cost to make voluntary contributions.
The gov.uk website states: “If you have gaps in your National Insurance record, check if you’re eligible for National Insurance credits before deciding to pay voluntary contributions. Contact HM Revenue and Customs (HMRC) if you think your National Insurance record is wrong.”
