State Pensions – A change to backdating National Insurance Contributions from July
As financial planners we encourage clients to make use of all the tax exemptions and allowances available to them where appropriate and whilst many state provided benefits are not relevant to our clients, one state benefit that we always look to maximise is State Pension.
The age that State Pension becomes available has been pushed back over recent years. For anyone born after 5 April 1960, there is a phased increase in the age it can be accessed to 67, and eventually it will be pushed to 68 for those born after April 1977. Nevertheless, it is a valuable benefit, paid without deduction of income tax, and most likely to be within your personal allowance too, so no income tax is due.
A minimum of 10 qualifying years National Insurance (NIC) is required to get any State Pension, and to achieve the maximum State Pension, those with no NIC record before 6 April 2016, need 35 years. For anyone with NICs paid before 2016, the rules are a little complex as we earn credits under the old system, where 30 years NIC were required for full State Pension, and so have an element of transitional protection to ensure we are no worse off under the “New State Pension”.
Our recommended starting point is to obtain a State Pension statement via the Government Gateway. It will tell you whether you have already achieved the maximum State Pension, or if not, how many additional years NIC you need to pay to achieve it. NIC continues to be paid if you are working, regardless of whether you have achieved full State Pension entitlement or not. If you find you have gaps in your NIC record and haven’t achieved the maximum, don’t worry, it doesn’t mean you have to go back to work! You can fill gaps, or pay Voluntary NIC.
So, why am I mentioning this now, when it has been something we have been talking about for years?
When the New State Pension was introduced in 2016, there was a transitional arrangement whereby instead of the usual rules allowing NIC to be backdated for up to six years, it was possible to buy missing NIC credits dating back to 2006. At the time of initially preparing this piece for our newsletter, the ability to backdate to 2006 was set to end on 5 April 2023. However, the government issued a statement on 7th March 2023 delaying the deadline until 31st July (perhaps they realised they’d be inundated with phone-calls!). All said and done, after 31st July, unless there is a further delay, you will only be able to buy backdated missing NIC credits for the standard six years.
Care was/is always needed that payment of backdated NIC achieves the objective of increasing State Pension, but for some it can be a useful facility.
Now is therefore an opportune time, particularly if you are approaching State Pension Age, to obtain a State Pension forecast via the Government Gateway and check your NIC credits. If you don’t have enough credits, then make a drink (it may take a while to get connected to someone) and pick up the phone to Future Pension Centre (0800 731 0175) who will be able to advise you whether paying backdated NIC will increase your State Pension entitlement, and which years’ NIC should be paid. There may be savings to be had by paying NIC for any gaps in earlier years rather than more recent years.