What you need to know about changes to NICs top ups

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The National Insurance contribution top up window is reverting to six years, and individuals with NICs gaps may have to retire on a smaller pension. So what action should you take between now and April?

State pension entitlement is dependent on an individual having 35 full qualifying years of National Insurance contributions (NICs) in order to receive the full state pension or 10 qualifying years to get a smaller state pension.

Previously, the full state pension requirement was for 30 qualifying years but increased to 35 with the introduction of the new state pension on 6 April 2016.

To support people who would not otherwise have achieved the required number of years by the time they retire, the government temporarily extended the standard NIC top up window from 6 years to 16 years. This meant that individuals could fill any NIC gaps in their NI history from as far back as 2006 to ensure they receive a full state pension.

From 5 April this year, the 16-year top up window is reverting back to six years. Individuals with gaps in their NICs may have to pay larger contributions to make up for any shortfalls, or retire on a smaller pension.

NI credits will continue to be available to fill in gaps in NIC history in place of voluntary contributions, but as before, they are only available in certain situations such as:

  • where parents are registered for Child Benefit for a child under 12 years
  • long-term unemployment
  • maternity leave
  • those who are in receipt of Carers Allowance.

So what action should individuals take between now and April? And is the advice the same for everyone? We spoke to four accountants for their views.

Obtain a state pension forecast and improve financial awareness

Jess Long, Senior Tax Consultant, Monahans

Prior to April, we advise individuals:

  • Obtain state pension forecast and review National Insurance record. Individuals on low earnings, self-employed with low profits or those living or working outside the UK may not automatically be making NI contributions. A forecast will show the cost of voluntary contributions and financial advice should then be obtained. If 5 April deadline is missed, a review of records can still be beneficial.
  • Improve financial awareness. Everyone should consider how many more years they have until they have a full state pension. Investing time into your understanding now will enable you to plan ahead effectively. There’s a general lack of awareness of potential implications a gap could have. For example, individuals who have taken career breaks or couples who have decided not to claim child benefit may be at a disadvantage. This could occur where the primary caregiver is not working or claiming and will therefore miss out on qualifying years for National Insurance purposes.
  • Don’t take a blanket approach. Apppropriate action is dependent on individual circumstances, for some making additional contributions may not increase the state pension entitlement at all.

Verdict: Obtain a state pension forecast to identify any gaps and focus on improving financial awareness to future-proof retirement.

View NI records to identify any incomplete years

Stephanie Sharpe, Director, Moore Kingston Smith

Individuals should log on to (or create) their personal tax account and view their National Insurance record. This will show which years are incomplete and give the cost of voluntary contributions to top up the year(s) for a full state pension qualifying year.

If someone already has 35 qualifying years, paying to fill gaps will not increase the pension they finally receive. Similarly, someone still in work, earning over £123 per week and expecting to reach 35 qualifying years by retirement need not top up.

Verdict: View personal national insurance record to identify any gaps and total cost of voluntary contributions still needed to qualify for state pension.

Some individuals may be better off paying into private pensions

Lauren Harvey, Assistants Account Manager, The Accountancy Partnership

Before April, people should check their Personal Tax Account and check if there are any gaps in their NIC record so there aren’t any nasty surprises in the future.

However, even the government advises people to make other arrangements. People shouldn’t rely solely on the state pension because it’s unlikely to be enough to live on when they’ve retired. This is why there are auto-enrolment and workplace pensions for employed workers and other arrangements for the self-employed – and tax advantages for using these. This might mean that some people are better off paying into their private pension, rather than topping up missing years, but it’s crucial to make an assessment on a case-by-case basis.

Verdict: Topping up missing years will not be appropriate for everyone, especially because there shouldn’t be sole reliance on a state pension. Some may be better off paying into private pensions instead.

Advice to ‘top up’ depends on individual circumstances

Tom Jamison, Managing Director, Abbeygate Accountancy

Before April, businesses and individuals should check their NIC records to see if they have any gaps that need filling. This can be done online through the government’s ‘Check your State Pension’ service. Seeking advice from the Department for Work and Pensions (DWP) or your professional advisors is also recommended to ensure you are making the right contributions.

If you do have gaps in your NICs, the advice is not always the same for everyone. It depends on personal circumstances, such as how many years they have already paid and how much they can afford to pay. However, for most people, it is worth topping up if they can afford it.

Verdict: Check for any gaps through government’s Check Your State Pension service but be aware that advice won’t the same for everyone – it will depend on individual circumstances.

Annie Makoff is a freelance journalist and editor.

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