If you’ve contracted out of National Insurance, can you top up your state pension?


If you’ve been contracted out of National Insurance during your working life (perhaps because you were in the public sector), you may be able to top up your state pension rights. Find out how.

Q. What’s the problem?

A. The problem is that if you were contracted out of National Insurance through your workplace pension, under the new ‘single tier’ or ‘flat rate’ state pension, you won’t be entitled to the full amount. For every year that you were contracted out, money is deducted from your state pension entitlement.

SAVVY TIP: You can find out how being contracted out affects the state pension you might get in my article called Contracting out and the new state pension – how do you work out what you’ll get?

Q. How can I top up my state pension?

A. Normally you can go back up to six years and make up any gaps in your National Insurance record, namely where you haven’t paid National Insurance at all or you haven’t paid enough for a full year. However, according to pensions and insurance company Royal London, it is possible to pay voluntary National Insurance for the years between retiring and reaching state pension age.

Under the new state pension rules, you need to have paid 35 years of National Insurance to get the full rate (£155.65 a week in tax year 2016 – 17). But if you were contracted out during your working life, you can’t go back over the years you were employed and pay extra National Insurance. However, according to Royal London, you can pay voluntary National Insurance (class 3) for those years after you retire but before you’re entitled to get the new state pension.

Q. How much will it cost?

A. Class 3 voluntary National Insurance rates are heavily subsidised. The amount they cost depends on the year you’re buying them for (as you can go back up to six years, you may not be buying them for the current tax year). One year’s worth of Class 3 National Insurance will cost around £733 in the tax year 2016 – 17, which will increase your state pension by approximately £230 a year for life.

Steve Webb, who was Pensions Minister under the coalition government and who is now head of policy at Royal London says: “It is rare for the Government to offer something on such generous financial terms and we want to make sure that everyone knows how to take advantage of this opportunity”.

Royal London has a guide to Topping up your state pension which you can download free of charge. Beware though, this guide runs to 29 pages and there’s a lot of detail (some of the charts aren’t very easy to read).

Related articles:

10 things you need to know about the new state pension from April 2016

State pensions and women: your state pension when you’re bringing up children

How to claim your state pension; what you need to know

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