Martin Lewis has recently offered advice on the state pension and the rules surrounding eligibility for the full amount
Martin Lewis has provided advice recently on a matter that numerous people face with their money. The financial expert spent time on his BBC podcast assessing the subject of the state pension and the rules around entitlement when you retire.
In Britain, you must have at least 10 qualifying years on your National Insurance (NI) record to get any new State Pension. To claim the full sum, you require roughly 35 years.
A qualifying year on your NI record can be secured by working and paying National Insurance contributions. It can also be gained through alternative methods.
A qualifying year can arise from getting National Insurance credits – for instance, if you were out of work, unwell, or a parent or carer. You might also qualify if you have resided or been employed abroad, or contributed a reduced rate of National Insurance as a married woman.
Yet, the aspect Martin concentrated on is the other way to obtain a qualifying year on your NI record – namely the payment of voluntary National Insurance contributions, reports the Mirror. Martin tackled the subject on his BBC podcast following a listener’s question in an episode published a couple of months ago, but whose advice is still relevant today. Holly requested his guidance about the prospect of paying to plug particular gaps in her National Insurance contributions.
She revealed she was contemplating paying to cover two years in order to increase her total number of qualifying years to 10. She has been employed overseas for several years and has also dedicated some time to education.
She enquired: “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’s advice on National Insurance gaps
Martin began by remarking: “That’s a really interesting question.” He then explored her available choices before reaching two conclusions – and what he advised Holly provides useful information for anyone weighing up gaps in their state pension.
He stated: “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 initial observation. However, he proceeded to describe a situation in which filling those gaps might genuinely prove beneficial.
He observed that numerous older people grumble about already possessing adequate contributions for their full state pension, asking “why do I have to keep paying National Insurance?” He stated: “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 something 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 stating that if she truly still wished to go ahead, she ought to take time to think it through and obtain advice from the government before making any moves. The complete podcast can be heard here.
What are the rules on paying for National Insurance record gaps?
Gaps may emerge in your National Insurance record if you don’t pay National Insurance. Based on the gov.uk website, this could be because you were:
- 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
- employed but had low earnings
- living or working outside the UK
- self-employed but did not pay contributions because of small profits
The Government recommends you should examine your National Insurance record to spot any missing periods. This allows you to discover what it would cost to make voluntary payments.
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.”
