State pension National Insurance warning over topping up | Personal Finance | Finance

Topping up your National Insurance (NI) to increase your state pension may provide a welcome boost to your retirement income but it may not be worth it for everyone.

Now is the time to voluntarily pay contributions to cover any gaps in your NI record, as you can currently top up beyond the usual six years, as far back as the 2006/2007 tax year. This will revert to the standard six years in April 2025.

But finance expert Yair Bennett, founder of BOI Agent, has warned it may not actually be worth your money. He said: “If someone has other financial priorities or a shorter retirement horizon, the mathematics may not work out.

“It’s important to consider tax consequences, alternative retirement income sources, and cost of living adjustments. If returns surpass the pension payout, it may be prudent to invest that money elsewhere.”

You typically need 35 full years of NI contributions to get the full new state pension, currently £221.20 a week, and 30 years of contributions to get the full basic amount, at £169.50 a week.

Payments will increase 4.1 percent next April in line with the triple lock, raising the full new state pension to £230.30 a week while the full basic amout will go up to £176.45 a week.

The current rates for voluntary NI contributions are £3.45 a week for Class 2 contributions, or £179.40 a year, and £17.45 a week for Class 3 contributions, or £907.40 a week.

This applies from 2006 to the current tax year if you are a man born after April 5, 1951 or a woman born after April 5, 1953.

To find out if you have a gap in your NI contributions, you check your NI record on the Government website.

You can also find out how much state pension you are on course to receive and if you can increase it, using the forecast tool on the Government website.

Mr Bennett gave an example of when it would pay to top up your contributions. He said: “Say someone notices a six-year contribution shortfall. They may pay £900 in optional Class 3 contributions per year, totalling £5,400.

“They may enhance their weekly pension by £30, or £1,560 a year. Within four years of retirement, they’ve recouped the initial investment, and each year after is profit.

“Someone intending to take their pension for 20 years or more could lose tens of thousands of pounds.”

He also shared an example of a client he worked with who benefited from topping up: “After analysing her records and finding the missing years, a self-employed professional with irregular payments increased her pension by nearly £20 a week. The low upfront expenditure was worth her long-term financial security.”

Another consideration to factor in is the fact that the state pension age is increasing over the coming years.

Legislation is in place for the age to go up from the current 66 to 67 in stages between 2026 and 2028. This will then increase from 67 to 68 between 2044 and 2046.

However, this could change as there have been reports ministers are considering bringing forward the move from 67 to 68.

The Government is due to issue an update on this matter within two years of the current Parliament.