A recent report commissioned by Royal London estimates that millions of workers who retire before their State Pension Age could give a significant boost to their state pension.
If a worker misses out on a number of years National Insurance contributions, for example early retirement, career break or working abroad, they can make voluntary payments for the missed years. Royal London estimate this can give a return of around 30%.
Employees of schemes that were contracted out might also be able to catch up on the missed years.
The new Flat Rate State Pension was introduced earlier this year. For people retiring after 6 April 2016 the full flat rate pension is £155.65 per week. This is based on someone making 35 years of full flat rate national Insurance contributions. However, people that paid reduced contributions will not receive the new rate at the start of the scheme.
Former Lib Dem MP Steve Webb, is now director of policy at pensions firm Royal London. Mr Webb said that “paying voluntary or ‘Class 3′ contributions were attractive because the rate paid on these contributions is heavily subsidised by the Government.”
He confirmed that one year of Class 3 National Insurance Contributions can be purchased for £733. This will potentially boost someone’s state pension entitlement by £230 per year for the rest of their lives.
Assuming someone lives for twenty years in retirement then an additional £4600 of extra State Pension would be generated. Someone who filled five ‘missing’ years in their national insurance contributions could receive an extra £23,000 in pension by paying £4,000, according to Webb.
Royal London have recently issued a publication called ‘good with your money’. It provides useful information about the state pension.
Webb said: ‘Large numbers of workers could gain a substantial boost to their retirement planning for the payment of a relatively modest lump sum. But the rules around topping up State Pensions are complex so we hope that our new guide will help people to navigate the system.
‘It is rare for the Government to offer something on such generous financial terms and we want to make sure that everyone knows how to take advantage of this opportunity’.
Many public sector workers are entitled to take their workplace pension at the age of 60, but will not get a state pension until they are 65 or 66.
This means that no national insurance contributions are paid between their retirement date and State Pension Age. Buying additional years using class 3 contributions can be a very effective way of boosting your State Pension.
Royal London estimates around 210,000 NHS workers, 150,000 teachers and 130,000 civil service workers could make gains from voluntary contributions payments.
More on the State Pension
If you are interested in finding out more about your State Pension entitlement, then the best thing to do is to obtain a pensions forecast. This is very simple to do. All you need to do is call the Future Pensions Centre on 0345 3000 168. You will need your personal details to hand including your National Insurance number.