How to increase your State Pension by £55,000

Workers are expected to pay a record amount on their state pension this year before the deadline for changes that could cost them tens of thousands of pounds in retirement.

Time is running out to fill any gaps in social security contributions between 2006 and 2016 to ensure you receive the full state pension, currently £9,628 a year. The deadline for catch-up payments for missing years in this period is April 2023.

Tens of thousands of people top up their pensions through voluntary contributions each year, but consultancy LCP is predicting payments will increase before the deadline next year.

There is usually a period of six years to top up missing contributions, but a switch to the statutory pension in 2016 led to a one-off longer benefit to top up missing contributions between the 2006/07 and 2015/16 financial years.

The standard cost of making up missing NI contributions for a year is £824.20, although the self-employed only pay £163.80. The top-up can add tens of thousands of pounds to a pensioner’s income throughout their retirement.

Sir Steve Webb, a former Pensions Secretary and now at LCP, said: “I hear regularly from people who would be interested in increasing their state pension but don’t know if they can do it and how to go about it.

“At its best, topping up the state pension can generate a tremendous return, far better than almost any other use of excess money.”

The full statutory flat rate pension is currently £185.15 per week. Someone who has paid NI contributions for 25 years, instead of the 35 years required for a full state pension, would be paid £132.25 a week.

However, filling in all the gaps would bring an extra £52.90 a week or £2,750 a year, or around £55,000 in total over a 20-year retirement.

Brian Moore, 65, should be paid significantly less than the full £185.15 a week when he reaches state pension age next year. He had been a member of the Local Government Pension Scheme which had ‘dropped out’ of the state pension, reducing his entitlement.

But by paying a lump sum of £4,000 to fill in gaps in his NI report, he increased his pension by £28 a week, or £1,456 a year. He was also able to use NI credits he earned as his father’s caregiver to fill two years of contributions.

But Sir Steve said there are “many pitfalls” when people increase their state pension. Some years cost less to fill than others: for example, a year where someone worked part-time and paid some NI is cheaper to fill than a completely blank year.

LCP has a new calculator on its website that explains the process.

Making voluntary contributions isn’t for everyone, especially those who don’t plan on retiring anytime soon.

Andrew Tully of Canada Life, an insurer, said: “Topping up contributions to increase your state pension can be a very good deal, but it’s important that you first make sure it makes sense for you. Don’t do it just because you can.

“Think about how many more years you want to work — you won’t get the money back if you overpay and realize you’d be paying the dues anyway through work.”

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