Buying state pension top-ups can give a huge boost to retirement income, but people are often baffled over whether this will be worthwhile for them personally.
You will need to check your National Insurance record to find out what you have paid towards a state pension already, then decide if you need to top up and if so which years to either fill gaps in or purchase from scratch.
Right now the usual six-year deadline to do this is extended back to 2006/07 – a special deal that was due to expire on 5 April 2023. But after a phone meltdown the top-ups deadline has been pushed back twice and is now 5 April 2025.
State pension top-ups: Find out how to boost YOUR retirement income
A new online service for buying state pension top-ups will be launched by the spring, following a deluge of complaints that the current system is confusing and takes too long to process payments.
The website now being developed and tested by the Government will let people check which years are best to top up and buy on the spot, but they will still be able to phone up and pay offline if they prefer.
Check back to this top-ups guide for more information on the new service, which we will post when we get it. In the meantime, former Pensions Minister and This is Money columnist Steve Webb runs a free website on buying state pension top-ups to help savers through the taxing process.
Webb, now a partner at LCP, says the site is aimed at helping people ‘decode’ the information they get about their National Insurance record from the Government’s site and work out whether topping up their state pension makes sense.
How much does it cost to boost your state pension?
One year of voluntary National Insurance contributions costs £824.20 at the 2022-2023 ‘Class 3’ rate, or less if you are filling in a part year.
The costs have been frozen to 5 April 2025, even though there was a 10.1 per cent rise in the state pension this year, and another is expected next spring.
‘At best topping up your state pension can be a highly cost-effective way of securing a higher income in retirement,’ says Steve Webb.
‘In many cases this will boost state pension entitlement by 1/35th of the standard rate.
That works out at £5.82 a week, or £303 a year, or more than £6,000 over a 20-year retirement (not taking into account tax), for an initial outlay of £824.20 at the 2022-2023 rate.
The 2023-2024 rate is £907.40. The Government-backed MoneyHelper website has more information on what state pension top-ups cost for different years.
Self-employed people pay different rates of NI contributions, and the system for them is being overhauled from April. Steve Webb has full details on how self-employed people can build a state pension record.
What do you need to know before buying top-ups?
Steve Webb believes the Government’s ‘check your state pension’ website provides useful information but crucially does not help people to decide which years, if any, they should top up.
The LCP website helps to plug the gap for those who come under the ‘new’ state pension system launched in April 2106 – so, men born on or after 6 April 1951 and women born on or after 6 April 1953.
It works as follows:
– Users are asked to obtain information about their personal National Insurance record from the Gov.uk site first
– They are asked for basic details about their age and what it says on that record – this is not retained by LCP
– The site then interprets that information to explain to users their options
– Users are warned they should always check with the Department for Work and Pensions that topping up the years identified will definitely boost their state pension before paying any money.
Webb says in some cases the LCP site will simply confirm what users had already concluded, but he hopes it helps others discover the potential of top-ups.
He adds that there are two groups for whom top-ups may be of particular interest. First, public servants who retired early and were members of a contracted out occupational pension scheme which reduced their state pension below the maximum amount.
And second, self-employed people who might have gaps in their NI record and be able to go back to any year since 2006/07 to top it up.
Steve Webb’s golden rules for buying state pension top-ups
1. Make sure you are getting any credits you are entitled to before paying voluntary NI for a particular year.
For example, grandparents under pension age may be able to get credits towards their state pension if they are looking after a grandchild, enabling the child’s parent to go out to work.
As NI credits don’t cost anything, you should always claim what is available for free before paying voluntary NI for any given year.
2. Whether or not it makes sense for any given individual to top up depends on their individual circumstances.
You should always start by checking your state pension record at the Government’s web page.
This may tell you, for example, that you are already going to get the maximum state pension and therefore don’t need to make any voluntary contributions, even if you have some gaps in your record.
Filling blanks for certain years – particularly those before 2016/17 – can sometimes have no impact on your state pension, particularly if you were contracted out and have already paid in 30 years by April 2016
3. Some years may be cheaper to fill than others. If, for example, you worked for part of a year, you may find that you can complete that year more cheaply than filling a year that was completely blank.
4. Fill gaps at the Class 2 rate if you can as voluntary NI for the self-employed is much cheaper than for employees – £179.40 per year, rather than Class 3 contributions at £907.40 per year, at the 2023-2024 rates.
If you had low-income self-employment in a particular year and have a gap in your record, you should be able to pay at the Class 2 rate for that year, which will save you money.
The system for building a state pension record for self-employed people is changing from April.
Steve adds an important tip for all self-employed people – check your state pension record now.
He says: I have lost count of the number of times I have heard from self-employed people who reached retirement only to find big gaps in their NI record.
‘This often turns out to be related to periods when their accountant was dealing with these matters on their behalf and they simply assumed that everything was in order, when this was not actually the case.
‘Unfortunately, the onus is on each individual to make sure that they have paid the correct amount of National Insurance and it can be difficult or impossible to fix things much after the event.’
5. People who expect to be on benefits in retirement might find their increased state pension is clawed back in reduced pension credit or housing benefit
6. Always check before handing over any money. The rules are complex and you can sometimes fill a gap which makes no difference to your final pension.
How much is the state pension now?
The full flat rate state pension is £203.85 a week or an annual £10,600. This will rise to £221.20 or around £11,500 a year in April.
People who retired before April 2016 on a full basic state pension receive £156.20 a week or £8,120 a year. This is due to rise to £169.50 a week or around £8,800.
But the old basic rate is topped up by additional state pension entitlements – S2P and Serps – if they were earned during working years.
People who have contracted out of S2P and Serps to pay less National Insurance over the years and retire after April 2016 might get less than the full new state pension.
Workers now need to have 35 years of contributions to get the new flat rate state pension, compared with 30 years of qualifying National Insurance contributions to get the old state pension.
But even if you paid in full for a whole 35 years or more, if you contracted out for some years it might still reduce what you get.
Everyone gets the option of deferring their state pension to get more in their later years.
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