State pension: Does it pay to buy National Insurance credits?

Can you really pay £824 to get an extra £5,500 in retirement? We explain when buying National Insurance credits to top-up your state pension pays - and when it doesn't

Happy senior woman looking up while answering mobile phone at home
(Image credit: Getty images)

To get the new state pension – currently  £185.15 a week - you need 35 years of recorded National Insurance contributions (NICs).

If you have less than that, you will get a smaller pension. If you want to plug the gap in order to boost your state pension you can pay something called voluntary 'Class 3' contributions - otherwise known as National Insurance credits. 

It is not a decision to be taken lightly as it costs £824 to add an extra year of voluntary contributions - a significant sum for many. But, for that amount you’ll get an extra £5.29 to your weekly state pension or £275 per year - or £5,500 over a twenty-year retirement. And as the state pension rises each year, it becomes even more valuable over time.

Sounds good doesn’t it? But, there’s often confusion over whether it’s worthwhile to pay these voluntary contributions and - if it is - which years to opt for.

Read our guide to help you decide if it’s worth topping up your state pension.

What are National Insurance credits?

National Insurance credits are something that can be added to your National Insurance record when you’re not making National Insurance contributions. 

They essentially help you build up the minimum 10 years you need to get any state pension and can help you hit the 35-year mark that you need to be eligible for the full new state pension (currently £185.15 a week).

One stipulation: You can usually only buy National Insurance credits for gaps in your National Insurance record from the past six years.

However, until 5 April 2023, you can buy NI credits to fill gaps between tax years April 2006 and April 2016 (opens in new tab).

Talking on his BBC Sounds podcast (opens in new tab) recently, Martin Lewis has urged people to check if this is something they would benefit from:  “If you’re aged 45 to 70, you should be checking now whether you are able to boost your state pension. Now I say 45 to 70, that's because 45 is the youngest that I think it could work with but in reality it's more likely to apply for those aged 55 to 70.”

Should I buy National Insurance credits?

A key question to ask yourself is: How many years do I have on my National Insurance record and how many more years will I work (and earn at least £12,570 a year)?

If those two figures add up to 35 you are set to get a full state pension. “For this reason it’s probably a good idea to take a look once you get into your late 40s to see if there are any gaps,” says Helen Morrissey, senior pensions analyst at Hargreaves Lansdown.

Another rough guideline: If you’re at or near state pension age and your state pension is, or is forecast to be, less than £185.15 a week, AND you won't be able to continue working to add National Insurance contributions this way, then plugging the gap by topping up could be sensible.

An excellent tool to help you decide: the website calculator (opens in new tab) launched by former pension minister Steve Webb. Webb has previously described the government website (opens in new tab) that allows you to check your National Insurance record as ‘confusing’. “We’ve created a website that helps people work out if topping up their state pension makes sense based on their individual circumstances. You can have a look at www.lcp.uk.com/statepensionboost (opens in new tab)”, he says.

First action to take: check your NI record on the government website (opens in new tab). (You'll need to create a government gateway account if you don’t already have one.) 

Second action to take: once you can see your state pension forecast, Webb’s website calculator (opens in new tab) will take you through a number of easy questions starting with your date of birth, before asking you to input the figures you can see on your state pension forecast. 

The calculator interprets the information you submit and explains options to you: it’s the closest you’ll get to bespoke guidance. Users are told they should always double-check with the Department for Work and Pensions that topping up any years identified will definitely boost their state pension before paying any money.

Other sources of help: check with the Future Pension Service (opens in new tab) before handing over money to make sure you really will benefit from the extra contributions. “For instance you may be able to backdate a claim for a benefit you were entitled to that comes with an automatic NI credit,” Morrissey explains. “So you may not need to hand over as much money as you thought.” You can also ask the government Pension Service (opens in new tab) any questions relating to your state pension.

When not to buy National Insurance credits

While topping up your state pension can often be great value, there are cases where you need to be careful.

If you are still only in your thirties or early 40s then you still have many years left in your working life to accumulate the necessary years of NI contributions.

Other caveats, according to Webb, now partner at consultants LCP, include:

  1. Just because you have a gap doesn’t mean you should fill it! If you are going to get a full pension anyway by working up to retirement, then there’s no point paying voluntary contributions at the age of 45 just in case.
  2. Don’t do it if you expect to qualify for means-tested benefits in retirement such as pension credit, housing benefit or council tax help – topping up may result in a higher state pension but mean reduced benefit entitlement. It means paying voluntary NI credits could be poor value for money or even be a waste of time.
  3. Don’t pay if you might get a NI credit instead, for example, if you’re a grandparent looking after grandchildren then apply for a ‘specified adult childcare credit’ for free!
  4. People who have opted out of receiving Child benefit should certainly check their NI entitlement. Many people chose to opt out to avoid paying the High Income Child Benefit Tax Charge without realising they were also missing out on an NI credit towards their state pension. You can now sign a form to get these credits but claims can only be backdated three months.
  5. If you can pay voluntary contributions at Class 2 (self-employed) rate rather than Class 3 (employed) rate then it’s cheaper.
  6. Be careful to top up the ‘right’ years;  for most people who would not otherwise get a full state pension, paying for a year from 2016/17 onwards (when the new state pension came in) will boost your pension and make sense, but paying for older years may not do so;
  7. Don’t do it if you have a very short life expectancy. Topping up one year costs £825 and for that you get about £275 per year back. At current rates you need to draw a state pension for four years to recover your £825 outlay.

How can I check my National Insurance record?

You can see your NI record and any missing years on the government website (opens in new tab). You'll need to create a government gateway account if you don’t already have one.

Sadly, when it comes to the state pension, the government sometimes makes mistakes giving people the right amount. 

Tens of thousands of women could be missing out on £1,000s in their state pension after mistakes relating to a system previously known as Home Responsibilities Protection (HRP) (opens in new tab). If you were caring for a child under the age of 16 between 1978 and 2010, and your partner was paid child benefit, or you were taking care of a sick or disabled person, then you could be affected and eligible for credit towards your state pension under HRP. 

Meanwhile, 237,000 pensioners have been underpaid their state pension - totalling £1.46bn. Check to see if you’re one of them.

Katie is staff writer at The Money Edit. She was the former staff writer at The Times and The Sunday Times. Her experience includes writing about personal finance, culture, travel and interviews celebrities.  Her investigative work on financial abuse resulted in a number of mortgage prisoners being set free - and a nomination for the Best Personal Finance Story of the Year in the Headlinemoney awards 2021.