Pensions have been in the news a bit more often recently, with debates back and forth in the press about things such as the triple-lock, the age at which people may have to retire in the future and the cost of the public sector pension liability.
Now while it’s a common error to believe that National Insurance Contributions (NICs) are accumulated to fund our pensions in the future (pensions are simply funded from current taxation and NICs are effectively another tax), it is true that if you want to receive a pension then you need to have a full record of having made your NICs.
Many people pay far too little attention to their pension, erroneously thinking it’s something that will always be there and they can wait till they get older. Certainly, with the cost-of-living crisis and increased demands on the middle-aged, especially families, it’s easy to understand this reaction, but irrespective of what age you are now it really does pay to make sure you’re on top of your NICs.
There is no time like the present, especially as the rules are about to change. For the vast majority, to qualify for the maximum ‘new state pension’ (received by those retiring on or after 6th April 2016) you must have 35 qualifying years of NICs. For part payment of the ‘new state pension’ you’ll need to have contributed for at least 10 years. For anyone whose NI record started before 6th April 2016, different rules may apply – specifically, the number of required years of NI contributions/credits to obtain the full state pension may be higher.
NICs are typically made by both employed and self-employed individuals, based on their earnings. You may also receive NI credits if you are eligible. All your NICs or credits make up your NI history, which may not only affect your entitlement to the state pension but also other benefits, such as employment and support allowance.
At present, if you are behind on your contributions, you can make voluntary contributions to plug gaps in past years. Normally, you can only make voluntary contributions for the past six tax years. However, there is currently an extension in place and you can fill any gaps in your NIC history from 6th April 2006 to the present date by making voluntary contributions.
The key change is that from 6th April 2023, the dial is being reset and the timeframe for making voluntary contributions will change back to the normal six years. This means that in the 2023/24 tax year, you’ll only be able to make contributions going back to the 2017/18 tax year.
If you’re worried (or even if you’re not!), the first thing you need to do is check their NI record to identify any shortfalls in your NI history. You should also do the following:
As always, if you’re unsure or would like some advice, feel free to contact me.
Vivian Linstrom, M&S Accountancy and Taxation Ltd
