The Department for Work and Pensions (DWP) has published new direction to help some people increase their state pension income.
If you reached state retirement age between April 6, 2010 and April 5, 2015, but you are not receiving or expecting to receive a full basic state pension, you may perhaps increase the amount you receive by paying up to six additional years of voluntary Class 3 National Insurance contributions for years dating back to 1975.
This is in addition to the option you may already have to pay voluntary contributions for some of the last six tax years.
The DWP says paying voluntary dues is not right for everyone as it depends on your personal circumstances and you should seek further information and advice before making any payments.
Who could the advice help?
The orientations of the DWP aim to:
- men born between April 6, 1945 and April 5, 1950
- women born between April 6, 1950 and October 5, 1952
What are voluntary contributions?
When you work you pay part of your earnings to the UK government so that when you retire you can receive regular income from the state pension.
The money you pay is called national insurance contributions.
If you have not contributed enough in a tax year, you may be able to make voluntary contributions to improve your basic pension.
Make additional voluntary contributions for previous years
You may be able to pay up to six additional years of voluntary contributions to cover years dating back to 1975, if you:
- reached the legal retirement age between April 6, 2010 and April 5, 2015, and
- already have 20 years of qualification, including all full years of Household Liability Protection (HRP)
What is a qualifying year?
A qualifying year is a tax year in which you have paid, are considered to have paid or been credited with enough national insurance contributions to count towards your state pension.
You pay national insurance contributions while you work, care for others or claim certain benefits.
What is Household Liability Protection?
Home Liability coverage protected a carer’s national record for the time they spent caring for a child under 16, or an ill or disabled person, for at least 35 hours per week – and, from 2003, approved family assistants.
Family responsibility protection was replaced in April 2010 by a weekly national insurance credit to be counted towards the state pension.
Can I pay voluntary dues for all the years I paid the married woman’s rate?
The DWP guidelines state, “You cannot pay voluntary dues for a tax year where you elected to pay the reduced married woman’s rate for all of that year.”
How much do voluntary contributions cost?
The weekly cost is £15.85 in 2022 to 2023, or £824.20 per year for each full year you buy, however the cost may change each year.
You may not have to pay for an entire year if you have already paid dues or have credits for the tax year you wish to pay for.
Is there a time limit for making additional voluntary contributions?
You have up to six years from the date you reach statutory retirement age to pay voluntary contributions under this opportunity.
How much additional basic state pension could I get?
Each additional year you pay will increase your basic state pension by 1/30th of the full basic state pension. The full basic state pension is £141.85 per week from 11 April 2022 and a 1/30th increase is around £4.73 per week.
Voluntary contributions cannot increase your basic pension beyond the full rate.
From when would my basic state pension increase?
Voluntary contributions will increase your basic state pension from the time your payment is received – it cannot be backdated to the time you have reached state retirement age.
Things to Consider Carefully Before Paying Voluntary Contributions
The state pension rules changed from 6 April 2010 and one of the changes means that you will only need 30 years of qualification for a full basic state pension.
Most of the rules for collecting bereavement benefits, which can be paid to your spouse or civil partner upon your death, have changed.
Bereavement Benefits have been replaced by the Bereavement Support Payment since April 2017 – voluntary contributions will not be used to qualify for this benefit.
The DWP warns that not everyone who can pay voluntary contributions will benefit from their payment.
He said: “You have to check whether you would be better off or worse off if you paid voluntary contributions.”
The online guidance contains examples of circumstances which could mean that you would derive little or no benefit from paying voluntary contributions.
- an improved basic state pension may reduce income-related benefits, for example pension credit or housing benefit, that you or your partner currently receive or may receive in the future
- an improved basic state pension may mean you pay more tax, as the state pension is taxable
- you may be able to use contributions from your deceased spouse or civil partner, or former spouse or civil partner to enhance your basic state pension – so you may not need to pay additional voluntary contributions
- The Bereavement Allowance and Widowed Parent’s Allowance have been replaced by the Bereavement Support Payment for new claimants from April 2017. Voluntary contributions will not be used to qualify for this new benefit.
Your decision to make voluntary contributions may also be affected by:
- your life expectancy
- the date on which you and, if applicable, your deceased or former spouse or civil partner reach the legal retirement age, and
- the number of years of eligibility you have
If you have not yet applied for your state pension, you can obtain a provisional state pension assessment.
If you think paying voluntary contributions might help you, you can telephone the Pensions Service on 0800 731 0469.
The DWP guidelines advise: “It is important to carefully consider your own situation before paying. There is no automatic right to a refund if, after paying, you decide you made the wrong choice.
Contact the Pensions Department
The DWP will contact HM Revenue and Customs (HMRC) on your behalf to find out if there are any gaps in your National Insurance record.
They will then write to you to confirm the number of years of voluntary contributions you could purchase and explain the payment process, if that is what you decide to do.
When looking for advice or additional information, always have available:
- your full name and current address
- your date of birth
- your national insurance number
- your previous addresses and the dates you lived there (including any time spent abroad)
- if you are married or in a civil partnership, you will need the name, date of birth and national insurance number of your husband, wife or civil partner
- details of any other benefits you receive or request
- details of any child benefits you have received in the past, so that DWP can check whether family responsibility protection has been placed on your file
More detailed information on voluntary contributions can be found on GOV.UK here.