The current State Pension is £11,502 per year and is expected to rise to around £12,000 for the 2025/26 tax year. To put this into perspective, at today’s annuity rates, it would cost over £300,000 to purchase an index-linked annuity starting at £12,000 a year. This highlights the importance of maximising your State Pension entitlement.
To receive the full State Pension, you need 35 qualifying years of National Insurance (NI) contributions. If you have missing years, you may be wondering if it’s worth topping up voluntary Class 3 NI contributions. This decision is financial, but the breakeven period is relatively short—approximately three years for employees, and even less for self-employed individuals who can pay Class 2 contributions for missing years. Additionally, if you weren’t working due to raising children, you may be eligible for NI credits to help fill in those gaps.
For employees, making Class 3 contributions costs £824.20 or £907.40 per year for missing years, which can result in an extra £302.86 annually in State Pension. For the self-employed, Class 2 contributions cost just £179.40 per year for each missing year and provide the same £302.86 annual pension increase.
While normally you can only go back six years to make up missing contributions, there is a current opportunity to fill in gaps going back as far as 2006/07. The deadline for this extended carry-back is 5 April 2025, so if you’re looking to maximise your pension, now is a good time to review your records.
At A&C Chartered Accountants, we can help you navigate the complexities of your pension contributions and determine whether topping up your National Insurance is the right move for your financial future. Get in touch if you’d like to discuss your options.