Is it worth spending £1,200 to fill state pension gaps at age 43?


I’m a nurse and haven’t racked up enough NI years, is it worth spending £1,200 to fill gaps in my state pension record at age 43? Steve Webb replies

I am a 43 year old NHS nurse. Whilst I was a student I didn’t earn enough to contribute to my state pension.

I’ve made some enquiries with HMRC and they’ve advised me that it is possible to voluntary pay Class 3 National Insurance contributions, as follows:

Tax year 2006/07 £824.20

Tax year 2007/08 £380.40

I have until April 2023 to make these payments. Would it be a worthwhile investment?

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Retirement planning: Is it worth spending £1,200 to fill old gaps in my state pension record at age 43?

Steve Webb replies: Based on your age I see that you come under the ‘new’ state pension system where you need 35 years of National Insurance contributions (or credits) to get the full flat rate pension, currently worth £185.15 per week.

For those who retire in the early years of the new system they can sometimes get less than this even if they have 35 or more years of contributions, but for someone such as yourself who will spend most of your working life under the new system you can ignore this complication.

A key question in deciding whether or not to fill one or both of these gaps in your record is whether you can get to the full 35 years in any case, or whether you would need to fill gaps in order to do so.

If, for some reason, you don’t think you will get 35 years in before you retire then paying voluntary NI contributions can be good value for money.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

The normal price for a full year of contributions is the £824.20 figure you have been quoted for 2006/07, and even at that price this would represent good value. 

By paying this lump sum to buy back one extra year you would get an extra 1/35 of the full pension, or roughly £275 a year on your pension.

As you can see, provided your draw a pension for at least three years (or four if you allow for basic rate tax) you will recover your initial outlay and anything after that is profit.

You have been quoted an even cheaper price for 2007/08 – just £380.40. 

I assume this is because you worked and paid NI for part of that year so you are just topping up for the rest of the year. 

Filling the gap for 2007/08 could be even better value in that you would pay out roughly £380 but still get an extra £275 a year on your pension. In that scenario you start to be in profit within a couple of years of retiring.

However, all of this could be a complete waste of time.

The fact that you are only being told about gaps in 2006/07 and 2007/08 suggests to me that you have lots of NI contributions (and no gaps) for years since then and perhaps a few before then. You can check how many years you have in total via the gov.uk website here.

If we suppose you have around 20 years so far from when you finished as a student to the present day then you only need another 15 years to get the full total. 

Someone aged 43 probably has a state pension age of at least 68, so that would give you around 25 years in which to fit in 15 years of contributions. As long as you do this then any money you spent now on filling historical gaps would be a waste of time.

In addition, if it turns out that you don’t manage to build up a further 15 years through paid work, perhaps because you retire early, you would still have the freedom to pay voluntary NI contributions later in your working life. 

It would be fair to say this is unlikely to be as cheap as the price you have been quoted for 2007/08, but at least this way you would not run the risk of handing over money which turned out to be a waste of time.

One final caveat is that someone who thought they might end up in retirement on benefit might gain little from boosting their state pension.

Broadly speaking, increasing your state pension will reduce your entitlement to things like pension credit or housing benefit, so may not be good value. 

At your age you can’t really know what your situation will be in retirement, but if you have a nearly full state pension and perhaps an NHS pension on top you should hopefully be clear of benefit levels and not have to worry about this risk.

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Ask Steve Webb a pension question

Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

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If Steve is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on pensions to the public. It can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.  

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