The State Pension top-up deadline has been extended to 31 July 2023 following the UK Government’s review. Swaati Osborne, Head of Wealth Planning, LGT Wealth Management US, shares the key takeaways from the government’s decision to be aware of.
In the UK, State Pension entitlement is based on the number of years of National Insurance (NI) contributions you have been credited for. You become eligible to draw on your UK State Pension from the age of 66, which is gradually increasing from 6 May 2026 and will be age 67 by 2028. This could further rise to age 68 by the end of the 2030s and will remain under review, so it could change again in the future depending on various factors, such as changes in life expectancy.
New rules were introduced in April 2016, which changed the State Pension system. As part of the change in rules, the Government provided an extended grace period to make top-ups to your NI record for any missing years from the 2006/7 tax year onwards. Under normal circumstances, it was only possible to look back to the last six tax years to top up any gaps in a NI record. This grace period was due to end on the 5 April 2023, but this has now been extended to 31 July 2023 (due to high volumes of calls to the relative Government departments to proceed with the top-up process and allow individuals sufficient time to complete the process).
Under the pre-April 2016 rules, the Basic State Pension was made up of two parts:
The number of qualifying years under the pre-April 2016 system was different and depended on gender and date of birth.
|Date of birth
|Years of National Insurance contributions
|Before 6 April 1950
|On or between 6 April 1950 - 5 April 1953
|Before 6 April 1945
|On or between 6 April 1945 - 5 April 1951
Under the rules, for females born before 6 April 1950, there was a requirement to have at least ten years of the 39 qualifying contribution years in order to receive any State Pension. For males born before 6 April 1945, there was a requirement to have at least eleven years of the 44 qualifying contribution years. For those individuals that fulfil the minimum requirement, the basic State Pension was then calculated on the proportion of total years held out of the maximum. For instance, a male born before 6 April 1945 had 22 qualifying years (half of 44) so would receive half of their State Pension.
For the other age categories, no minimum qualifying period was required, and you would receive 1/30 of the basic State Pension amount for each qualifying year held.
The full basic State Pension is currently £141.85 a week for people who have all the qualifying years of NI contributions for their respective date of birth. As well as the Basic State Pension, these individuals may also get Additional State Pension.
The new rules introduced in April 2016 aimed to put in place a single tier basic rate of State Pension for all individuals. This was termed the ‘New State Pension’ and resulted in an increase in the number of qualifying years required to obtain the maximum benefit from 30 to 35 years. Individuals that had 35 qualifying years would receive £185.15 per week (for 2022/23 tax year).
Qualifying years can be fulfilled in a variety of ways:
If you do not have 35 qualifying years, then the amount of State Pension will be lower, and a minimum of ten years is required to qualify for any State Pension entitlement.
If you have built up qualifying years under the pre-2016 system, you would be given a ‘starting amount’. This is the higher of either of the following:
If the ‘starting amount’ is higher than the full amount of the New State Pension (i.e., more than £185.15 per week in the 2022/23 tax year), then any amount over that level would be protected and paid on top of the full amount when New State Pension is claimed.
If the ‘starting amount’ is lower than the full amount of the New State Pension, then you may be able to build up a higher level of New State Pension through contributions and credits you make between 6 April 2016 and your State Pension Age.
Under the standard rules, it is possible to top up missing or incomplete years of NI contributions, looking back at the last six tax years by making voluntary NI contributions
‘The extended grace period to allow individuals to top up further than six years, mentioned above, will end on 31 July 2023 and, after this, individuals will only be able to look back at the last six tax years.’
The current cost of voluntary NI Contributions is £15.85 per week, or £824.20 per year, if you are completing a partial year, then it may cost less than this to obtain the qualifying year credit. Based on the current State Pension, one extra year equates to £275 per year of income (linked to inflation).
For those that have not yet reached State Pension age, the first step is to check your State Pension record to see if you already have enough years (or are likely to have enough years) to get the full State Pension. If you have missed payment for any years over six years ago, you have until the 31 July 2023 deadline to make these up. You can check your state pension forecast and National Insurance contribution record via gov.uk using your government gateway ID.
If there is no shortfall between the 2006/07 and 2016/17 tax years, then this deadline will not impact you and you will be able to continue to top up as per the normal rules.
If you would like to top up, then you need to contact the Government’s Future Pension Centre for a personalised quote to see if that will increase your State Pension entitlement. The next step would be to inform the government accordingly of a decision to receive a bill which can then be approved and paid online.
Topping up the State Pension may not be appropriate for everyone. For example, for individuals who also have entitlement to US Social Security benefits, it is important to note that you may be impacted by the Windfall Elimination Programme (WEP). We suggest that you do speak with your regulated financial adviser or the Department of Work and Pensions (DWP) before making any big financial decisions.
Further details can be obtained directly from the government here.
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