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The State Pension

Voluntary NI contributions

It may be possible to pay voluntary Class 3 National Insurance contributions (Class 2 if you’re self-employed or possibly if you’re living abroad) in order to get a higher State Pension. This would be a higher Basic State Pension for those people who reach their State Pension age before 6 April 2016 and a higher new State Pension for those people who reach their State Pension age on or after 6 April 2016. The new State Pension will be “single tier” and will not distinguish between basic and additional pension as at present.

From October 2015 until 5 April 2017, people who have some entitlement to a State Pension and have reached their state pension age before 6 April 2016, will have the opportunity to pay voluntary Class 3A National Insurance contributions to purchase additional State Pension.

Your entitlement to certain State benefits and the amount you can get depends on your National Insurance contribution (NICs) record. In some cases it depends on your spouse or civil partner's contributions. These benefits include:

  • State Pension
  • Contribution-based jobseeker's allowance
  • Bereavement allowance
  • Contribution-based employment and support allowance.

Sometimes you don't have to pay National Insurance contributions (NICs). This might be because you're not working or you don't earn enough.

Paying class 3 or class 2 voluntary National Insurance contributions

The NICs that you can pay voluntarily are normally Class 3 contributions, but if you're self-employed or working abroad, you can pay Class 2 contributions instead.

Before deciding whether to pay voluntary NICs, you should make sure that:

  • there are gaps in your NI record for which payment can be made
  • you know how much you need to pay
  • you understand the benefits of paying
  • If you’re unsure about any gaps in your national insurance record you should contact the National Insurance Helpline on  0300 200 3500

Alternatively, you could ask for a National Insurance Statement online by going clicking here.

When you can't pay voluntary NICs

You cannot always pay Class 3 contributions (or Class 2) for a tax-year; for example, if:

  • you're a married woman (or a widow) and paid reduced rate contributions for that year
  • you're entitled to NI credits during the full tax year.

 

Deciding whether to pay voluntary NICs

It isn't always right for you to pay voluntary NICs. It depends on several things, for example, how much you've paid in already and when you reach your State Pension age.  Click here to read more about deciding whether to pay voluntary NICs. 

 

Cost of voluntary NICs

The cost depends on the year you want to pay for.  The cost for the 2016/17 tax year is:

  • £14.10 a week for Class 3 voluntary NICs
  • £2.80 a week for Class 2 voluntary NICs

 

Periods spent abroad

You may be able to pay voluntary NICs if you're living abroad, or fill in gaps from when you were living abroad. There are special rules for this and you can find them here.

 

Time limits for paying voluntary National Insurance contributions

HM Revenue & Customs (HMRC) has made changes to extend the time limits for paying voluntary NICs for the 2006-07 to 2015-16 tax years inclusive, to ensure contributors who reach State Pension age under the new State Pension system are not disadvantaged. Those affected will have more time to pay voluntary class 2 or class 3 contributions for the years from 2006-07 to 2015-16.  The extended time limits apply if:

  • person reaches State Pension age on or after 6 April 2016; and
  • person makes payment by 5 April 2023.

The amount to be paid is as follows:

  • if paid by 5 April 2019, the amount payable is the rate that applied in the 2012-13 tax year for the tax years 2006-07 to 2009 - 10 for Class 3 and 2006-07 to 2010-11 for Class 2.
  • for the remaining years, up to and including 2015-16, higher rate provisions will not apply until 6 April 2019.
  • if payment is made after 5 April 2019, the rates may have increased.

You can find further details here: www.hmrc.gov.uk/ni/volcontr/whentop-up.htm

 

Class 3A Voluntary national insurance contributions

The option of paying class 3A voluntary national insurance contributions (NICs) is available to anyone who has an entitlement to State Pension and has reached state pension age by 5 April 2016. That is, before the introduction of the new state pension. They will be able to purchase additional state pension by paying class 3A voluntary NICs during an 18 month period starting from October 2015.

It will be possible to purchase from £1 to £25 a week of additional State Pension in exchange for a one-off lump sum. The lump sum varies depending on age.

The additional pension purchased with class 3A NICs:

  • will increase in line with inflation (if living in a country where these are normally paid)
  • will be inheritable on death, ie a surviving spouse will be entitled to at least 50% of the additional pension
  • will be taxable
  • will be taken into account in any assessment of income related means tested benefits, including pension credit, housing benefit and help with council tax.

Go to the following web site to get full details of the rates.

 

Frequently asked...

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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