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

If you’re looking to make voluntary National Insurance contributions in order to benefit from a bigger state pension, then we’ve got some good news for you: the government has extended the deadline that was due to end in April. 

And in other good news: the government has also announced that parents who have missed out on pension credits due to not receiving child benefit will be able to claim them retrospectively.

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 20-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, which years to opt for if it is worth it and sometimes difficult to do so due to current systematic failures at the Department for Work and Pensions (DWP).

Generally the voluntary contributions are limited to only the previous six tax years, but there is currently a temporary window open allowing people to buy NI credits to fill in any gaps between tax years April 2006 to April 2016. 

The deadline for doing so was due to be 5 April 2023, but if you haven’t managed to purchase those credits yet, you’ve been given a reprieve as the deadline has been extended until 31 July.

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, there is currently a temporary scheme in place allowing people to buy NI credits to fill gaps between tax years April 2006 and April 2016. This scheme was due to end in April, but has been extended until 31 July 2023.

It means you have around four months to buy NI credits to fill any gaps between this 2006 and 2016 time period. It comes after demand from savers was such that the DWP’s phonelines have been completely jammed, and means that anyone hoping to top up their contributions should be able to do so.

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 is the website calculator launched by former pension minister Steve Webb. Webb has previously described the government website 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”, he says.

First action to take: check your NI record on the government website. (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 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 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's Pension Service 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 a partner at the consultant 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. If you can pay voluntary contributions at the Class 2 (self-employed) rate rather than the Class 3 (employed) rate then it’s cheaper.
5. 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;
6. 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.

Parents who don't claim child benefit will now get NI credits

For years, parents who have opted out of receiving child benefit have often done so 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 sign a form to get these credits but claims can only be backdated for three months.

Other parents have been unable to work or earn enough to make NI contributions.

The government has finally recognised this issue and promised parents who have missed out on National Insurance credits that they will be able to claim them retroactively in the future.

It is currently unclear exactly when and how parents will be able to begin claiming back pension credits that they have missed.

The Treasury says parents do not need to take any action immediately and that the next steps will be published in due course. We'll update this article as soon as we know more.

How can I check my National Insurance record?

You can see your NI record and any missing years on the government website. 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. Former Pensions Minister Steve Webb is calling on the government to "come clean" on systematic failures and when they will be fixed.

Many people have taken to social media to highlight the issue.

This person discovered she had two years missing on her National Insurance record despite working at that time:

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). 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. 

This woman found out she was eligible for 12 years' worth of credit this way:

Be aware that some people are struggling to fix gaps in their National Insurance record due to poor service levels from the DWP and HMRC. You may need to be determined and persistent.

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