Pension consultancy LCP has launched a new online tool to help savers work out if they can benefit by topping up their State Pension by paying voluntary National Insurance Contributions.
The pension consultancy said the new tool may be of particular interest to early-retired public servants who have been members of a contracted out occupational pension scheme, and the self-employed who may have gaps in their NI record.
Over half a billion pounds has been paid by the public in voluntary National Insurance Contributions in the past four years.
Steve Webb, former pensions minister and partner at LCP, has predicted that this year is likely to be a record year for voluntary NICs due to the ‘added impetus’ of a deadline at the end of the current financial year for paying back historic missing years’ contributions for the years between 2006 and 2016.
He said that tens of thousands of people are topping up their State Pension each year, but many more could do so if they knew what to do.
One year of voluntary NICs typically costs £824.20 at current rates for Class 3 contributions. According to calculations by LCP, in many cases this will boost state pension entitlement by 1/35th of the standard rate, or around £275 per year. This means that someone who tops up by one year will get their money back within four years of drawing their pension, even allowing for basic rate tax. Someone who draws a State Pension for twenty years will get back £4,400 (net of basic rate tax) for their initial outlay of £824.20.
The pension consultancy said that whilst the Government’s ‘check your state pension’ website provides useful information, it does not help people decide which years, if any, they should top up.
Mr Webb said: “I regularly hear from people who would be interested in boosting their state pension but are confused about whether they can do so and how to go about it. At its best, topping up your state pension can generate a tremendous rate of return, far better than almost any other way of using spare capital.
“But there are many pitfalls to avoid, and we hope that our new website will help people to navigate the labyrinth of boosting their state pension.”
A separate website from LCP that enables people to check for errors in their State Pension has been visited over 800,000 times.