Will Paying Voluntary NICs Boost Your Pension?
To qualify for a full state pension, you need 35 qualifying years. You can earn these through paying National Insurance contributions (NICs) or receiving National Insurance credits. If you don’t have enough qualifying years by the time you reach state pension age, you can ‘buy’ additional years by paying voluntary contributions.
How Do You Earn a Qualifying Year?
For employed earners, a qualifying year is earned when your earnings exceed the lower earnings limit, which for 2024/25 is £6,396.
For self-employed earners, the rules have changed. Up to 2023/24, you earned a qualifying year by paying Class 2 contributions if your profits exceeded the small profits threshold (£6,725 for 2023/24). From 2024/25 onwards, Class 2 contributions are abolished. Instead, you’ll earn a qualifying year by paying Class 4 contributions on profits exceeding the lower profits limit (£12,570 for 2024/25). If your profits fall between the small profits threshold and the lower profits limit, you receive a National Insurance credit.
National Insurance Credits
National Insurance credits are given in various situations, such as claiming child benefit for a child under 12, even if you don’t receive the payment. Credits are also awarded to those on certain benefits and to carers receiving carer’s allowance.
Check Your State Pension Record
Before paying voluntary NICs, check your state pension record. Visit the Gov.uk website at www.gov.uk/check-state-pension or use the HMRC app.
If you don’t have 35 qualifying years or won’t by the time you reach state pension age, check your National Insurance record at www.gov.uk/check-national-insurance-record. This will show your qualifying years and any gaps in your record.
Paying Voluntary Contributions
To get a full state pension, you need 35 qualifying years by state pension age. If you have at least ten qualifying years, you’ll receive a reduced pension. If you have fewer than 35 qualifying years, paying voluntary contributions can increase your state pension, as long as you have at least ten qualifying years. If paying voluntary contributions won’t bring you to ten qualifying years, it’s not worthwhile. Once you reach 35 qualifying years, there’s no benefit in making further voluntary contributions.
Remember to consider any National Insurance credits you might receive.
You can pay voluntary contributions by making Class 3 contributions or, if you have low self-employment profits, voluntary Class 2 contributions.
Class 3 Contributions
Class 3 contributions can fill gaps in your National Insurance record. For 2024/25, these are £17.45 per week. Contributions must typically be paid within six years of the end of the tax year they relate to. If paid later, they’re at the highest rate between the year they apply to and the year they’re paid.
An extended deadline applies for gaps from 6 April 2006 to 5 April 2016, with contributions for this period payable until 5 April 2025 at the 2022/23 rate of £15.85 per week. The deadline for paying contributions for 2016/17 and 2017/18 has also been extended to 5 April 2025.
Voluntary Class 2 Contributions
Self-employed earners with profits below the small profits threshold can pay Class 2 contributions voluntarily. From 2024/25, despite the abolition of the liability to pay Class 2 contributions, voluntary Class 2 contributions remain a cost-effective option at £3.45 per week. These are paid through the Self Assessment system.
Voluntary Class 2 contributions can typically only be paid for the previous six years. However, an extended deadline of 5 April 2025 applies for contributions from 2006/07 to 2015/16, payable at the 2022/23 rate of £3.15 per week. The deadline for paying voluntary Class 2 contributions for 2016/17 and 2017/18 has also been extended.
Need Help with Your National Insurance Contributions?
Wondering if paying voluntary NICs will boost your state pension? Contact Jon and the team at Jon Davies Accountants for expert advice tailored to your situation. We’re here to help you make informed decisions about your future.
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