Plugging the Pension Gap – Act now, before 31 July 2023

You may not realise that you have gaps in your National Insurance (NI) record until it is too late and you find you are not entitled to a full state pension.

Under the new state pension, a tax payer needs 35 complete years of NI Contributions to receive the maximum state retirement pension and at least 10 years to receive any at all.

There are many reasons why you might have gaps in your NI record. For instance:

• You may have been self-employed but did not pay contributions because your profits were under the small earnings threshold of, currently £6,725.
• You were employed but your earnings were under the lower earnings limit.
• Your main source of income was from let property which does not count as earnings for NI purposes; or
• You were looking after either your own children, disabled children or were a full-time carer.

You can easily check for any gaps in your NI record through your Personal Tax Account (PTA) with HMRC online. Alternatively, you can request the details by completing a State Pension Forecast (BR19).

There are many situations where you do not have to pay to plug the gap as you would have qualified for credit. For example, if you are a parent or guardian registered for Child Benefits for a child under 12, you would qualify for automatic credit. However, not all credits are automatic so it is worth checking in case you need to apply.

Once you have checked your NI record, if you already have enough qualifying years, then there is no need to make any voluntary contributions as you cannot improve your state pension position any further. However, if this is not the case, you need to consider:

1. What the gaps are.
2. How they can be filled; and
3. The best course of action for you, considering your age and personal circumstances.

If you are close to retirement age, then there may be a strong reason to plug the gap. If you are younger, you may have enough qualifying years ahead to meet the required qualifying years without having to go back and fill any gaps.

Depending on your circumstances, voluntary contributions will either be made by way of Class 3 NI Contributions (NIC), currently at £824.20 for a full year or, if you are self-employed, by Class 2 NIC, which is currently £163.80 for a full year.

If you elected to make voluntary Class 2 NIC on your 2022 self-assessment tax return as your self-employment earnings were below the small earnings threshold, these need to have been collected by HMRC via self-assessment and paid via 31 January 2023.

If full payment was made after 31 January 2023 then HMRC will remove the Class 2 NIC from your tax return. All is not lost however as credit can still be obtained for that year by contacting HMRC and making a separate payment.

Normally it is only possible to make voluntary contributions for the past six years. However, when the new state pension was introduced in 2016, HMRC introduced transitional rules which provided an extension for people to plug any gaps in their NI record, going back to 6 April 2006. This extension was due to end on 5 April 2023. However, due to the surge in demand for this top-up service, the government has extended this deadline to 31 July 2023, to ensure taxpayers do not miss out.

After 31 July 2023, the system will go back to normal and people will only be able to go back to the previous six years. It is therefore important that you take the following action before this date:

1. Check your current position by obtaining a pension forecast.
2. Check to see if there are any errors or gaps that can be plugged with any credits; and then
3. Consider if you should make any voluntary contributions to top up your pension.

If you identify any gaps or are concerned that this could affect you and you would like to discuss then please do get in touch as soon as possible.