Surge in Individuals Making Additional National Insurance Payments

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A growing number of individuals are choosing to make additional voluntary national insurance contributions (NICs) with the aim of enhancing their state pension. Despite the seeming peculiarity of willingly paying more tax, HMRC data reveals a significant increase in voluntary class 3 NICs, reaching £392 million in the year to March 2023, up from £212 million in March 2022 and £172 million in 2021.

Experts attribute this surge to many individuals nearing state pension age rushing to meet a deadline to purchase extra NI credits before April 2023. Ordinarily, individuals can only fill gaps for the past six years, but a special concession allowed savers to go back to 2006/07 if contributions were made before April 5, 2023. The overwhelming response led to HMRC extending the deadline to July 2023 and later to April 2025.

Former Pensions Minister and current partner at consultancy Lane, Clark & Peacock, Steve Webb, emphasizes the opportunity presented by voluntary NICs. He states, “At best, voluntary NICs are a relatively cheap way of boosting your state retirement pension and represent excellent value for most people.”

Voluntary national insurance contributions, classified as class 3, assist individuals in filling gaps in their national insurance record, ultimately impacting the amount of state pension entitlement. Checking the national insurance record online or contacting the Future Pension Centre is recommended for those who haven’t reached state pension age and wish to fill gaps. Individuals already at state pension age and seeking to purchase more credits need to contact the Pension Service.

Issues with phone lines for inquiries have led to extended deadlines. Contributors often face difficulties getting through on the phone to determine which years they can top up and at what cost. The process involves contacting the ‘Future Pension Centre’ at the DWP to inquire about filling gaps and then contacting HMRC for a ‘code’ to ensure correct payment allocation. However, even those who navigate this process report delays in updating their record or state pension forecast.

The current cost for paying for previous years is £15.85 per week or £824.20 to fill a full historic gap year. This typically adds 1/35 of the full state pension rate, translating to just over £300 per year. Webb suggests that individuals drawing a pension for at least three years will generally benefit from paying voluntary NICs.

The feasibility of this approach depends on proximity to the state pension age, and those still working may automatically accumulate sufficient credits. Despite government promises to launch an online system for topping up without multiple phone calls, this solution is yet to go live.