I am a retired teacher and as a result get a reduced state pension because I was ‘contracted-out’. My date of birth is 23 August 1953.

I paid National Insurance (NI) for 46 years with no gaps but obviously paid at a reduced rate during the contracted-out period. Even though there are no gaps in my NI record, can I top up my NI contributions to boost my state pension entitlement?

I have tried contacting the Future Pension Centre but there are no options on their message system to press to answer this question.

Any guidance you can provide will be much appreciated.

Cynthia

Tom Selby, AJ Bell Head of Retirement Policy, says:

Contracting-out was an option previously open to people prior to 6 April 2016 whereby, in exchange for lower NI contributions, employees agreed to opt-out of the ‘additional state pension’, meaning they would not build up an entitlement towards it. The additional state pension was part of the old state pension system which topped up your basic state pension entitlement.

Both contracting-out and the additional state pension were abolished from 6 April 2016, when the new flat-rate state pension was introduced.  For those reaching state pension age after 5 April 2016, any years you contracted-out are deducted from your state pension entitlement when figuring out you ‘foundation amount’.

This means that even people with a NI contribution record of 35 years or more – the number you usually need to qualify for the full £10,600 a year new state pension – could be entitled to less than the full state pension amount if they contracted-out for several years under the old system.

Anyone in this position can buy extra NI years from the government to boost their state pension entitlement. You usually need to pay voluntary ‘Class 3’ NI contributions to top up your state pension entitlement.

Normally, you can go back up to seven years to plug gaps in your NI record – meaning someone paying voluntary NI today would be able to buy NI for missing years going back to 6 April 2016.

However, transitional measures introduced as part of the 2016 state pension reforms mean you can go all the way back to 6 April 2006 to fill NI gaps. The Department for Work and Pensions (DWP) has recently extended the deadline for taking advantage of these transitional measures to 5 April 2025.

The Department for Work and Pensions (DWP) says anyone topping up for these periods will be charged 2022/23 Class 3 NI rates. It costs £15.85 to buy one week’s worth of Class 3 NI at those rates or £824.20 per year.

Based on someone increasing their entitlement to the ‘new’ state pension (worth £203.85 per week in 2023/24), that could result in an income boost of £5.82 per week or £302.86 per year.

What’s more, that income will be protected by the ‘triple-lock’, meaning it rises every year by the highest of average earnings, inflation or 2.5%. In April this year, the state pension increased by a whopping 10.1%, in line with inflation in September 2022. Broadly speaking, anyone who increases their state pension on these terms will need to live three to four years to be in ‘profit’ from the deal.

Given average life expectancy at state pension age is around nine years for men and 11 years for women – with a decent chance of living into your 90s – those in good health who can boost their state pension could benefit handsomely by doing so.

However, not everyone who has previously contracted-out will benefit from paying voluntary NI. This is quite complicated and will depend on what you would have been entitled to under the old system.

As you are over state pension age, the DWP says you should contact the Pension Service to confirm if paying voluntary NI will boost your entitlement. 

For anyone below state pension age, contact the Future Pension Centre to find out if paying voluntary NI will increase your entitlement. 

It is worth making the effort to do this, as if you pay voluntary NI and don’t increase your entitlement, there is no guarantee you will get a refund.

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