Those considering paying voluntary National Insurance Contributions (NICs) should take action soon or face a hike in the cost of making up gaps.
Contribution costs are set to rise from 5 April with the new tax year.
Pension provider Royal London is warning those thinking of filling the gaps to make contributions before this date. For example, making an annual rate contribution for tax year 2010/11 currently costs £626.60. If you make the contribution after 5th April however, the cost increased by £153.40 to £780.
Who is applicable?
Those who reach pension age after 5 April 2016, who come under the new state pension system can fill gaps in their National Insurance record at these more favourable rates until the end of the tax year.
Steve Webb, Royal London director of policy and former pensions minister, comments: “For many people, topping up their state pension through paying voluntary NICs can produce a good rate of return because the cost of doing so is subsidised by the government.
“But the price of voluntary NICs will rise sharply in April, so those considering doing so may wish to act quickly and could save hundreds of pounds.”
Is it worth it?
It is essential to check that filling the gaps will boost your state pension before doing so as complex transitional rules mean that top ups might not actually boost your state pension income.
The table below shows the additional costs that you will incur for top ups after 5 April 2019:
|Contribution year(s)||Weekly Rate||Annual rate if bought by 5 April 2019||Annual rate after 5 April 2019||Additional cost|
Source: Royal London, January 2019
Reasons for topping up your NICs
Even paying the higher amount to make up missed years can prove good value for money as each tax year paid represents 1/35th of your entire state pension entitlement.
From the new tax year those with full state pension entitlement will receive around £168.60 per week. This means that each additional year you plug is worth around £4.80 per week for life.
This is equivalent to £250 per year. So, if you pay one extra year of NICs you’ll earn back what you paid in three years.
With the contribution costs rising from 5 April, it makes sense to get the extra contributions paid for now as you’ll get the same amount of state pension for less than after the new tax year.
Let’s chat first
As always with these financial decisions, it is important to consider your personal lifestyle and any health issues you might have or foresee, as you might not live long enough to reap the benefit of extra contributions if you are in poor health. Get in touch and we can chat about your personal circumstances.