Martin Lewis has shared state pension advice after being given a ‘really interesting’ question by a listener to his podcast
Martin Lewis has advised a young woman that a plan she is looking at for her state pension is ‘overkill’. The money expert issued the advice as he explored the matter of the state pension and the rules governing eligibility when you retire.
In the UK, you must have at least 10 qualifying years on your National Insurance (NI) record to receive any new State Pension. To get the full amount, you require approximately 35 years.
A qualifying year on your NI record can be secured by working and paying National Insurance contributions. It can also be obtained through alternative methods.
A qualifying year can result from receiving National Insurance credits – for instance, if you were unemployed, ill, or a parent or carer. You may also qualify if you have lived or worked overseas, or paid a reduced rate of National Insurance as a married woman.
The area Martin concentrated on in a recent podcadst is the alternative pathway to securing a qualifying year on your NI record. This is the payment of voluntary National Insurance contributions.
Martin, a regular on ITV, tackled the subject on a recent edition of his BBC podcast after a listener put a question to him. Holly requested his guidance concerning the possibility of paying to fill certain gaps in her National Insurance contributions.
She revealed she was considering paying to fill two years in order to bring her total number of qualifying years to 10. She has worked abroad for several years and has also spent some time studying. She posed the question: “I am currently 36. Is it worth paying the two now or would it be considered a waste of money as I am likely to reach the 35 years needed for a full state pension anyway?”
Martin Lewis’ guidance on filling National Insurance gaps
Martin began by saying: “That’s a really interesting question.” He then carefully assessed her circumstances before reaching two important conclusions – advice that could prove invaluable for anyone facing similar state pension gaps.
He explained: “The first thing I’d do is I’d go and look at your pension projection. On your pension projection, your state pension projection, which is on gov.uk, are you predicted to be able to get that you will have the full state pension when you retire, which is a very long time away?
“If you are, I think this is probably overkill, because it’s not like once you get to the full state pension, you earn more NI years, you get even bigger than the full state pension. It doesn’t work like that.”
That formed his initial assessment. However, he proceeded to describe a situation where filling those gaps might actually prove beneficial. He pointed out that many older people grumble about already having enough contributions for their full state pension, asking “why do I have to keep paying National Insurance?”
He explained: “It’s because National Insurance is a tax in reality. It’s also a tax that happens to be demarked as your contributions towards getting a state pension once you are older.
“So if you are on for the full state pension, then you probably don’t need to do this.”
‘Exception’ rule where it’s good to pay for gaps at a young age
Martin continued: “The only time I would make an exception on that is if you could buy these years really, really cheaply. If any of these are part years – so a part year is where you have almost got all the contributions you need to get a year but you are not quite and it’s binary. I know people who have been able to buy a part year for £15.
“Normally it’s going to cost you, a full year, in the 900ish pounds. But if you could buy a part year for 15, 20, hey maybe 50 quid, even at your age, just in case somethng happens in future, as you can only buy back a certain amount – 6 years – I’d be tempted to go, you know what, it’s 50 quid, I’m just going to do it, just on the off-chance that I might need it at some point in the future.
“But if you are having to pay the full £950 for it, I’d probably be thinking it wasn’t worth it. You are so young at 36 for doing this. There are a lot of risks that you’re just going to be buying money, throwing stuff away – there are big risks for you that the state pension might become means-tested once you are older.
“We don’t know that. I don’t think that’s going to happen imminently for people retiring now. But you are talking about retiring in 30-35 years. Who knows what will be happening in the UK to state pensions in 30-35 years.
“So there are a lot or risks in this in doing it now. If you are on to get the full state pension, I probably wouldn’t be doing it – other than if you can get a year really cheaply, so it’s beer money-type costs, where you may as well do it just as a safety net in case there’s a year where you don’t work in the future and you wouldn’t be able to get it, and this would be a really cheap way to buy it.”
He wrapped up by advising that if she remained keen on going ahead, she ought to take her time weighing up the decision and consult official government resources before making any commitments. The complete podcast is available to listen to here.
What are the rules on paying for National Insurance record gaps?
Gaps can appear in your National Insurance record if you fail to pay National Insurance. According to the gov.uk website, this might be because you were:
- employed but had low earnings
- unemployed and were not claiming benefits
- self-employed but did not pay contributions because of small profits
- getting National Insurance credits for less than a full tax year
- living or working outside the UK
- self-employed but did not pay contributions because of small profits
The Government advises you should review your National Insurance record to identify any gaps. This enables you to see what it would cost to pay voluntary contributions.
The gov.uk website states: “If you have gaps in your National Insurance record, check if you’re eligible for National Insurance credits before deciding to pay voluntary contributions. Contact HM Revenue and Customs (HMRC) if you think your National Insurance record is wrong.”
