UK State Pension – “Gaps” on your NI record
This article will help you understand:
- Identifying Gaps on your NI record
- Paying Voluntary NI Contributions for previous years
- Avail of strong financial payback in retirement
- Brexit and your UK State Pension
A recent exchange with a client, and it is one I probably have taken for granted prior to this, has prompted this post with regards to dealing with gaps in you UK state pension. I was explaining to her that there is an extended window for paying voluntary NI contributions for previous years, what HM Revenue & Customs call “gaps” on your NI pension record. She could not believe that you could pay for 14 historical years of her UK state pension. Indeed, she was surprised she could pay for any historical years given she had left the UK in 1992.
Under normal rules the most historic years you can pay voluntary National Insurance (NI) Contributions for is 6 years. So, in the current year that means all 6 years 2015/16 – 2020/21 inclusive. However, a concession was granted by HMG arising from changes to the UK State Pension in April 2016. The concession effectively meant you could pay voluntary contributions for all years from 2006/07 up to date… provided of course, they were missing from you NI record.
The concession was an effort by HMG to permit people to maximise their NI record before the 2016 changes. In the current year, 2020/21, that means the maximum historical gap is 14 years, 2006/07 – 2019/20. So, what does that mean for your UK State Pension?
Helping a client identify ‘Gaps’ on their NI record
My client had 6 qualifying years on your NI pension record. On it’s own she was not eligible for any UK state pension as the minimum eligibility requirement is 10 qualifying years.
However, assuming she paid for the maximum 14 years missing from her NI record, 2006-07 – 2019/20, she would now have 20 qualifying years on her NI record equating to a UK state pension of £91.62pw! Of course, it will cost either £11,089 (at the Class 3 rate) or just £2,227 (at the Class 2 rate) to secure that pension but either scenario represents a very strong payback. At worst, she will recover her payment within 28 months of retirement at the Class 3 rate, or, a mere 6 months if she is eligible for the lower Class 2 rate.
Bear in mind, the cost of a typical life annuity giving you £91.62pw (£4,764pa) would require you to have something like £120 – 125,000 at retirement date to pay for it! With the UK state pension you can secure an equivalent retirement income for £11,089 at worst or just £2,227 if you are eligible for Class 2 contributions.
The above example highlights the value in addressing “gaps” in your NI record. Also, the “pre-Brexit” reference above is not an issue for Irish citizens as we will continue to share mutual access to the respective social security systems after Brexit under the terms of the CTA (Common Travel Area) formally renewed in February 2019.
The extended window paying for gaps in your NI record will end in April 2023, and from then, the normal window of 6 historic years will be restored.