Warning for workers to check National Insurance for ‘missing years’ – seven reasons you could lose cash & how to fix it
WORKERS are being warned to check if they have gaps in their National Insurance record to avoid missing out on cash.
You might have holes in your record for various reasons, like if you took time out to raise children, but luckily there is a way to fix it.
If you don’t fill in the gaps you could end up missing out on the full state pension when you retire, which at the moment is worth £203.85 a week or £10,608 a year .
It takes 35 “qualifying” years of National Insurance (NI) contributions to get the full state pension.
But if you do have holes, you can pay for the gaps to be filled.
For a limited time you can backfill holes from 2006 to 2016 but this scheme is ending on July 31.
After that you’ll only be able to top up for the previous six years.
Those who could benefit from the scheme are being urged to apply before the deadline – and doing so could get you £55,000 over a 20-year retirement.
But, many people who could do with topping up might not check because they don’t realise they could have gaps in their record.
You can check how many years of NI payments you’ve made and see any missing years on the government website.
We spoke to pensions experts for all the reasons that someone might have missing years.
You took time out to care for children
There are several reasons why someone may have gaps in their national insurance record, one of them is if you took time out of the work force to look after children.
Helen Morrissey, pension expert at Hargreaves Lansdown, explained that if you didn’t claim child benefit during that time, you’ll be likely have some gaps.
She said: “If you claimed child benefit during time out caring for children then you will get a National Insurance credit but if you opted out of receiving child benefit due to the High Income Child Benefit Tax Charge then you could have gaps.”
The finance pro pointed out that paying to plug these holes in your record may not be necessary in this case;
“Before paying for voluntary National Insurance credits it’s worth seeing if you can backdate a claim to receive the credits for free through these benefits,” she said.
It’s worth noting though that this is not a sure thing and child benefit payments are usually only backdated by up to three months.
That means you won’t be able to fill gaps prior – such as between 2006 and 2016 before the July 31 deadline.
If you were unemployed
“The same goes for if you were unemployed and didn’t claim benefits at the time”, Helen said.
So, if you could have claimed Universal Credit and Jobseekers Allowance when you weren’t working but didn’t – you could fill the holes for that period.
Helen explained: “These benefits come with National Insurance credits so if you qualify then see if you can backdate a claim.”
She also pointed out that these aren’t the only benefits that come with National Insurance credits, other benefits like Employment Support Allowance and Carers Allowance do too.
To find out if you can make a backdated claim you can head over to the government website.
You didn’t earn enough
Another reason you might find your have gaps in your NI record is because you you didn’t earn enough for several years.
Helen said: “If you work and earn above the Primary Threshold – currently £242 a week – then you automatically start paying National Insurance and build qualifying years towards your state pension.”
But, if you earn above the Lower Earnings Limit (LEL) – currently £123 per week – you would not pay NI and therefore wouldn’t get a credit.
If you earned under the limit for an extended period of time then you may have holes in your record from that time.
“People who need to be wary are those with multiple part time jobs who may not hit the LEL with one employer or those with fluctuating income,” Helen warned.
You only worked part of the year on a high wage
Former pensions minister and now partner at LCP, Steve Webb, also told The Sun that working part of a year on the LEL level but working the rest on a higher wage could cause problems too.
He said: “Just because you paid some NI in a given year, it doesn’t mean you paid enough NI to get a ‘qualifying year’ towards your state pension.”
Steve explained that if you earned at the LEL through the year then you would get a qualifying year towards the state pension.
He added: “But if you only worked part year, then it’s more complicated.
“You can still get a ‘qualifying year’ towards your pension if you work part year but at a higher wage than the minimum LEL.”
The issue of having a “part year” could arise if you had a gap between ending one job and starting another, or if you took six months in a to go travelling and didn’t pay NI.
The best thing to do is to head over to the government website to check what how many contributions yo have wracked up over your working life.
It will tell you if each year you’ve worked counts as a qualifying year or not, plus it will tell you if you can voluntarily pay an NIC to make up for it.
Steve added: “The good news is that it’s usually cheaper to top up a ‘part year’ than to fill a blank year.”
Again, the government website will give you the costs for topping up each year.
You were contracted out
Another key reason why you may have gaps is if you were contracted out of the state second pension (S2P) at any point, Helen explained.
This is the the Additional State Pension, which is an extra amount of money you could get on top of your basic State Pension if you’re a man born before 6 April 1951 or a woman born before 6 April 1953.
Helen said: “In exchange for giving up all or part of S2P you made lower NI contributions and received an extra boost to your workplace/personal pension instead.
“Paying less NI means many people have gaps in their record but the trade off is that they received an extra boost to their workplace/pension pension instead.”
Contracting out has since been abolished but it is a big reason why many people find they are on track to receive less state pension than they thought, Helen warned.
In this case of buying extra voluntary credits may not make a difference to how much state pension you end up with when you retire though.
Always check with DWP before handing over any money to make sure you really will benefit.
You were self employed
If you were self-employed for any period during your working life you may have gaps in your record too.
That’s if your business made small profits during that time and therefore you didn’t actually make any NI contributions.
In this case topping up could be a easy way to fill the gaps you created in that period.
You lived or worked outside the UK
If at any point in your working life you lived or worked outside the UK you too could benefit from topping up.
That’s because when you leave the country to travel or work abroad you will stop paying you NI.
This means that in turn you’ll also stop gaining contributions for your record and could end up with gaps of multiple years.
How to top up National Insurance contributions and how much you can get
Currently, you can top up for any missing years dating back to 2006 but a six-year limit will return on July 31, restricting how far you can go back to 2016.
This scheme only applies to people who reached (or will reach) state pension age after April 5, 2016.
In some cases, buying back missing years can be “extremely valuable” said Steve.
But, earning back the years isn’t free so your voluntary contributions do come at a price.
How much you pay will depend on whether you fill the gaps between 2006/07 to 2015/16 before the end of July, that’s because anyone doing so will be paying the 2022/23 rates.
It works out to be worth £15.85 a week which means it costs £824.20 to buy one year of contributions.
As the state pension was £185.15 per week in 2022/23, this boost would add £5.29 per week or around £275 per year.
Steve said that in an extreme case, someone who missed the deadline to fill their gaps would lose the chance to top up another 10 years of NI contributions.
Although you’d have to pay £8,242 (10 lots of £824.20), the annual state pension boost would be around £2,750.
Someone who was retired for 20 years would get back around £55,000 in total (before tax).
Anyone who tops-up their record after July 31 will pay the 2023/24 rates.
This works out to be £17.45 per missing week which means it costs £907.40 to buy one year of contributions.
As the state pension is currently £203.85 per week, this boost would add £5.82 per week or around £302.86 per year – or £6,057 over a 20-year retirement.
Someone with 10 missing years could pay out a little over £9,000 to fix the gaps but see a boost of £60,000 (before tax) in state pension over a typical 20-year retirement.
Though before making voluntary contributions, you need to get a pension forecast and speak to the Government’s Future Pension Centre.
This is because there are some situations in which paying historic contributions wouldn’t boost your state pension.
You can check the full list of who’s eligible for claiming credits on the government website.
It explains the circumstances where you’ll need to claim and when you’ll get it automatically.
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