The finance expert has faced a ‘really interesting’ question that has led him to explore state pension rules
Martin Lewis has issued guidance over an important question many people face when it comes to their money. The finance specialist has this week been delving into the issue of the state pension and the rules around getting one when you retire.
In the UK, you need to have at least 10 qualifying years on your National Insurance (NI) record to get any new State Pension. To get the full amount, you need around 35 years.
A qualifying year on your NI record can be achieved when you have worked and made National Insurance contributions. It can also be secured in other ways.
A qualifying year can come from getting National Insurance credits – for instance, if you were unemployed, ill or a parent or carer. You might also qualify if you have lived or worked abroad or paid reduced rate National Insurance for married women.
But the area Martin has been looking at is the other route to getting a qualifying year on your NI record. And that is paying voluntary National Insurance contributions.
Martin spoke on the subject in his latest BBC podcast after being asked a question by a listener. Holly sought out his advice about potentially paying to fill some gaps in her National Insurance contributions.
She said she was considering paying to fill two years to bring her total number of years to 10. She has worked for several years abroad and has also spent some time studying.
She asked him: “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 advice on paying for National Insurance contribution gaps
Martin began by saying: “That’s a really interesting question.” He then explored her options before concluding with two points – and what he said to Holly is useful advice for anyone looking at gaps in their state pension.
He said: “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 was his first point. However, he went on to explain that there could be a circumstance where it would be a good idea to pay to fill the gaps.
He said that many older people complain that they have already got enough for their full state pension and ask “why do I have to keep paying National Insurance?”
He said: “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 added: “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 finished by saying that if she really did still want to do it, she should have a think and get advice from the government first before going ahead. You can listen to the whole podcast here.
What are the rules on paying for National Insurance record gaps?
You can have gaps in your National Insurance record if you do not pay National Insurance. The gov.uk website says that this could be because you were:
- living or working outside the UK
- getting National Insurance credits for less than a full tax year
- employed but had low earnings
- self-employed but did not pay contributions because of small profits
- unemployed and were not claiming benefits
The Government says you should check your National Insurance record to see if you have any gaps. That then allows 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.”
