With the new state pension dependent on the amount of years you have paid National Insurance (NI) contributions, the question that is increasingly asked is “should I top my NI contributions to increase my state pensions?”
With this in mind the aim of this post is to help you answer that question. Before we do let’s look at the new state pension and how it works.
The Relationship between your NI Contributions and the new State Pension
The new state pension works on how many years NI contributions you have made. If you have made 35 years or more, you receive the full amount £155.65 per week. If you have paid in say, thirty years, you receive 30/35 of this, so £133 per week. Incidentally, under the old state pension you required thirty full years of NI contributions to earn the full state pension.
If at some point you have contracted out paying reduced NI this will adversely affect your state pension. It is assumed that your pension requirements will be met elsewhere.
Let’s get back to our question.
There are several important factors to consider when deciding whether to top-up your NI for a better state pension. They are:
- Your retirement date – If you are retiring sooner rather than later, then the Department of Work and Pensions (DWP) will look at how much you will get under the old pension scheme and how much under the new one and give you the higher amount. This is based on NI contributions made until April 2016. If it works out that the old pension scheme is higher, there is little point buying NI contribution years if you have 30 years worth of contributions.
- The amount of NI contributions you have made up until April 2016 and how many years you will pay before you retire. For example, say you are retiring in four years time and have made thirty years worth of NI contributions; it could be in your best interest to top up your NI to get a greater weekly payments. This is especially true if you are deemed to get more on the new pension scheme.
For £733 per year you can buy an extra year’s worth of NI contributions. This will give you an extra £230 per year. Providing you claim a state pension for four years or greater, you will make a ‘profit’. - Think about buying missing years rather than new ones. If you are going to buy NI contribution years, then look to buy missing ones. This is especially prudent if you are considered to be better off under the new scheme. The reason for this is that missing years are generally cheaper to replace than buying future years.
If you have made full contributions to your relevant pension, (30 years on the old state pension and 35 years on the new one) then there is no point buying additional years.
Contact me and get the Best Answer for you
To truly answer the question of whether it is worth buying NI contributions to top-up your pension, you are best advised to speak to an experienced financial planner. My awarding winning services can look at your finances and give you the best advice to make the most of your UK state pension. Click here and complete the Call Back Service form.
Source: Mail Online
For more information, please contact Michele Carby at Holborn Asset Management on +971 50 618 6463 and on e-mail at [email protected]
