It's possible to increase your basic state pension payout by thousands of pounds over the years by paying a few hundred quid now.
This is a 2011-12 Q&A; guide to paying to boost your state pension, including the state pension boosting calculator.
IMPORTANT! This guide is based on pension rules in 2011-12. The Government is discussing radical changes to the state pension but says those who pay to boost their pension will not lose out.
However, these are just proposals so no firm details are available yet (see the State pension reform MSE News story). We will update this guide once we know more.
In this guide
Step By Step:
Also read the Benefits Check-up Article
What is state pension boosting?
Each year of your working life you pay national insurance (NI) contributions as well as tax – some on benefits also get a credit for this. Once you hit the state retirement age, the weekly income you get from your pension depends on how many years of NI you paid.
The full basic state pension is currently £102.15 a week, but if you’re short of NI years you won’t get that. However…
Some can boost what they get each week, by making an additional payment to buy missed NI years.
This is just one method of pension boosting. It’s also possible to increase the amount you earn by delaying the start of your pension – see the State Pensions Deferring guide.
This guide is all about the basic state pension. There is also a second state pension (see the State Pensions for beginners guide for details).
How does the basic state pension work?
Here are the basics. Full details in the State Pensions for beginners guide.
What is the basic state pension?
It is a set weekly income until death you usually get once you reach the official retirement age (currently 60 or 61 for women, 65 for men, but rising soon for both – see the State pension age to rise MSE News story). But not everyone gets it.
How much do I get?
For the 2011/12 tax year, the full basic state pension gives you £102.15 a week. The amount rises every April based on the previous September's inflation rate (using the Consumer Prices Index), the increase in average earnings or 2.5%, whichever is higher.
How do I qualify for it?
The amount you're entitled to is calculated by the number of national insurance (NI) qualifying years you've accumulated. You earn a qualifying year by working and paying NI for that year, or if you're a carer, or if you are on certain benefits.
Anyone retiring now needs 30 NI years to get the full state pension, though for those who retired before 6 April 2010, men need 44 NI years and women 39 years – so this higher threshold will apply to most current pensioners.
If you don't have the full set, you normally get a pro-rata payout. So a man who retired before April 2010 with 33 NI years is eligible for three-quarters of the full basic state pension.
How do I claim it?
The Pension Service should automatically send you a claim form four months before you reach the official retirement age. Your pension is paid directly into your current account. If you don't receive the form, call 0800 731 7898.
Am I eligible for a pension credit boost?
Crucially, Pension Credit is a benefit available to many on low incomes or with limited savings to top up your income to a basic, minimum level, yet many miss out. It is easy to do a quick Benefits Check to ensure you're getting what you're entitled to. If you're getting pension credit it may mean there is no need to pay to boost your pension, but this is not a universal rule.
Step by step: Boost your state pension.
It's possible to pay to replace any missing NI qualifying years, or part years, which could mean a massive increase in your basic state pension payout.
For some, paying a £655 now could mean more than £1,000 a year extra. You'd only need to live for 25 weeks to be in profit.
This step-by-step guide helps you work out whether you can boost your pension by buying old NI years, and there's a quick calculator to help suggest if it's worth it. Here are the crucial details first.
Before buying extra years, remember that the Government is discussing radical changes to the state pension to create a flat-rate payout.
It says those who pay to boost their pension will not lose out. However, these are just proposals so no firm details are available yet (see the State pension reform MSE News story). We will update this guide once we know more.
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How many NI years do you have?
This is the key that defines whether it's worth bothering. HM Revenue & Customs (HMRC) should send out notices to people with NI gaps.
If you haven't received one or can't find it, don't worry. Call HMRC on 0845 915 5996 and it'll tell you.
Anyone with the full compliment should already be getting the full basic state pension, so won't need to buy any more. The years needed for a full basic state pension are:
Men Women Retired pre-6 April 2010 44 39 Retired on or after 6 April 2010 30 30 If you've got fewer than the maximum, go to step 2.
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Do you get pension credit?
Pension credit is a benefit that guarantees everyone a minimum income or gives a bit extra to those with savings. If you're not eligible (call 0800 99 1234 or read the Pension Credit guide to find out) move to step three.
If you are eligible...
... pension credit will usually top you up beyond the full basic state pension, so you don't have to buy extra NI years.
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Could you be excluded from buying NI?
There are some who may not be able to, or shouldn't, buy additional years.
- Can't buy enough to hit the minimum? If you have very few qualifying years and retired before April 2010, it may be you can't buy enough credits to hit the minimum. For instance, a man in that boat needs 11 years to get any state pension so if you can't reach that threshold by buying extra years, there is no point.
- Pay reduced NI? Married women sometimes pay less (known as the 'small stamp' or 'married women's stamp'). If you're in this boat, you can't replace any missing years where you paid reduced NI for the whole year.
- Able to claim via partner's contributions? If buying extra years won't beat the income you'd receive by claiming the couple's pension then don't do it. For full info see the State Pensions for beginners guide.
If you try to buy further years that would take you over the maximum, you'll normally be prevented from doing so by the Government.
If none of these apply, move to step 4.
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How many years can you buy?
If you're eligible, and you could benefit by boosting, it's time to get serious on the nitty-gritty. When buying extra years you have to buy what are called class 3 national insurance contributions.
There are two categories of years you can buy, but they don't apply to everyone.
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The previous six tax years, plus the year you're in
The quicker you are, the cheaper the price. If you buy within two years of the end of tax year you're purchasing, you pay that year's price, otherwise you'll pay today's price.
For example, buy the full 2009-10 year now and you'd pay the 2009-10 price, approximately £626 for a full year. However, if you buy it after 5 April 2012, you'll pay the 2012-13 price which has yet to be determined.
See full prices for each year.
Cost of buying additional NI years -
2004-05 to 2010-11NI Year Cost to buy now 2005-06* £655 2006-07* £655 2007-08 £655 2008-09 £655 2009-10 £626 2010-11 £626 2011-12 £655 Rounded to nearest pound. *In some cases, those who retire on or after 6 April 2010 get more time to pay at the rate for the year they're buying. Source: HMRC
- Just retired or close to retirement?
Some people can buy an additional six years from 1975-76 to 2003/04, on top of the last six years. This only applies to those who have reached, or will reach, state pension age between 6 April 2008 and 5 April 2015.
To buy these extra years you must already have at least 20 qualifying years, and if you reach the official retirement age before 6 April 2010 you must generally have at least one year from paid employment.
You pay the rate for the year you're in when buying these years, currently £655 a year. You have six years from the date on which you reach pension age to pay.
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The previous six tax years, plus the year you're in
There is no simple 'yes' or 'no' answer to whether you'll get a backdated payout as well as an increased future basic state pension as it depends on your circumstances. The Pension Boosting calculator (below) can help you find out.
The Pension Boosting Quick Calculator
This calculator is designed to give you a ROUGH idea of the worth of topping up extra years if you don't qualify for the full basic state pension.
See it more as a rule of thumb than an accurate answer as we've made a number of assumptions to make it simple to use.
Before buying extra years, remember that the Government is discussing radical changes to the state pension to create a flat-rate payout.
It says those who pay to boost their pension will not lose out. However, these are just proposals so no firm details are available yet (see the State pension reform MSE News story). We will update this guide once we know more.
It's important you understand the strengths and limitations of this calculator. The aim is to let you see rough the scale of the gain by topping-up your pension.
- You use the information at your own risk and we can't accept liability if things go wrong.
- We use the 2011/12 basic state pension payout (£102.15/week), but do not increase it for future years.
- The prices for NI years are correct until 5 April 2012.
- Before acting upon any information here, talk to the Pensions Service (0800 731 7898) to get a full appraisal.
- Figures used are before deduction of income tax.
Please report any errors or suggestions to statepensioncalc@moneysavingexpert.com
The main assumption is you are an individual (this DOESN'T work for those claiming a couple's pension), while we use the 2011/12 State Pension amount (£102.15/week), but do not increase it for future years.
If, on the back of this calculation, it looks likely that you want to buy more years, then ...
Don't buy before first making additional checks.
Use DirectGov's Pension Planning section before making any decision and go through a detailed plan. You can request an online State Pension forecast or call 0845 3000 168 to get one.
