State Pension magic!

The deadline to turn £800 into £6,500 is imminent.

The government is currently offering the best value for pensions that may ever be available but the offer ends on 5 April 2025! And unlike one of those furniture sales advertised seasonally, this really will be your last chance to benefit.

The offer in question gives the opportunity to increase your State Pension by buying any missing years, and the benefits could be lucrative.

Normally you can buy back up to six years, but when the ‘new’ State Pension was introduced, transitional arrangements were put in place to let you plug gaps all the way back to 2006.

This offer was due to end in 2023, but because of demand, the government phone lines couldn’t cope, and the date was extended to 5 April 2025.

What are the key numbers?

Typically, you need 35 years of ‘qualifying’ national insurance (NI) contributions to access the full State Pension which currently stands at £221.20 a week.

Up until the deadline of April 2025, you can pay just over £800 for each extra year of NI contributions up to a maximum of an additional 16 years. For this £800, you will receive an additional £328 per year, so over a 20-year period this would amount to £6,500! (1)

Using even simpler maths, after just 3 years you will break even, and for every year after, you will be in the black – in other words, in profit. The icing on the cake is that the £328 is currently inflation-proof!

• The dotted lines indicate the life expectancy for a male and a female (ONS).

As it’s possible to upgrade partial years, you could secure an even bigger bargain. So, say you’d worked for 51 weeks of a tax year and paid your NI, none of this would count towards your State Pension as it wasn’t a full year. However, if you paid just £16 to make up the one-week shortfall to make it a complete year, this could result in an additional £328 a year of State Pension!

What’s the downside?

The main risk is mortality risk because if you were to die before receiving 3 years of your State Pension you would not have reached the break-even point.

Another downside is that it will be classed as taxable income, so the amount you receive could be less and potentially impact your other allowances. We recommend speaking with your financial planner before making the payment.

The final consideration is that the pension system could be changed by the government. The greatest risks are that there could be an increase to the State Pension age meaning you get it later and therefore for fewer years, and/or they may change the triple lock which could increase the time it would take to break even.

How do I work out if it’s suitable for me?

The first two steps are straightforward and should only take a matter of a few minutes once you have logged on to gov.uk using your Government Gateway user ID.

Step 1

Check your National Insurance record. This will immediately tell you the years you have made full NI contributions, the years that have been missed, and also partial years. Remember it is only those years from 2006 that can be funded!
Check your National Insurance record – GOV.UK (www.gov.uk)

Step 2

If after checking your NI record it transpires you have missing years, the next step is to get your State Pension forecast. This will instantly provide an estimation of what you could get if you carried on working until State Pension age. If it is lower than £221.20 a week, you may be able to boost your years.

Whatever you do though, don’t buy extra years if you’re due a full State Pension as it won’t get you any extra income.

Check your State Pension forecast – GOV.UK (www.gov.uk)

Step 3

If you have identified a gap, you have a decision to make as to whether you fill it or not. There are some instances where these could be plugged for free as you may qualify for credits that have to be added manually. These scenarios can be found using the following link National Insurance credits: Eligibility – GOV.UK (www.gov.uk)

If you have gaps which require funding, you should consider if you have time to fund them in the future.

• If you are close to retirement, have gaps, and forecast less than £221.20 per week, this could be the proverbial no-brainer.
• For those over 40, it is worth seriously considering but will be based on your specific circumstances as the younger you are, the more time you have to earn enough qualifying years before you reach State Pension age.
• If you are under 40 it probably won’t make sense but might be worth upgrading partial years as outlined above. If, however, you have gaps you are certain you won’t make up, for example you may be working overseas for the foreseeable future, you should consider paying for full NI years.

If you are unsure or struggling to access your information you should contact the Future Pension Centre on 0800 731 0175. They’ll tell you whether doing so will actually result in any increase to your (eventual) State Pension. It is possible to pay to plug a gap and see no gain due to having a low income and qualifying for pension credit to bridge the gap, which is why it is so important to check.

How to top up?

So, you’ve concluded you should top up, the final step is to make the payment. It’s worth noting that you don’t need to buy all the NI years you want in one go (though you will need to buy any between 2006 and 2017 before 5 April 2025).

You can do this online on gov.uk or through the HMRC app using your government Gateway ID. Alternatively, you can do it over the phone by calling HMRC on 0300 200 3500 and they will talk you through the process and advise you how to pay, be it online or by cheque.

• Based on the average State pension being paid at the current age of 66 and the average life expectancy of age 86 as per the Office of National Statistics.

With the clock ticking to maximise the number of years you can purchase; we strongly recommend you look at your current position as a matter of urgency. If you require any help or further information, please feel free to contact your financial planner or dedicated client manager. For those new to Equilibrium, call us on 0161 383 3335 for a free no-obligation chat.

This article is intended as an informative piece and should not be construed as advice.