Maximising your state pension: The importance of voluntary National Insurance contributions before 5 April 2025

As the 5 April 2025 deadline approaches, HMRC is encouraging individuals to review their National Insurance (NI) records and consider making voluntary contributions to increase their state pension entitlement. For those who qualify under the new state pension system, it is a potential opportunity not to be missed and could pay back many times over the initial outlay.

As Westcotts Partner Matt Melksham discusses, you need to look carefully at your own circumstances to see if it’s the right thing to do for you.

Understanding the New State Pension

The state pension system underwent significant changes on 6 April 2016, impacting individuals reaching state pension age from that date onward. This includes men born on or after 6 April 1951 and women born on or after 6 April 1953.

Under the new rules, a person’s state pension is determined by qualifying years on their NI record – years when an individual paid sufficient NI contributions or received NI credits. Gaps in the record, where neither sufficient contributions nor credits were obtained, can significantly impact your pension entitlement.

To receive any state pension under the new system, an individual must have a minimum 10 qualifying years. To receive the full state pension, which currently stands at £221.20 a week (£11,502 PA), 35 qualifying years are required.

Anyone with between 10 and 35 qualifying years will receive a proportionate amount based on their contribution history and the difference between this and the full pension can amount to tens of thousands of pounds over the course of retirement.

For example, £6.32 per week less pension due to one missing NI year may not sound much but for someone living 20 years beyond state retirement age that’s £6,573 of index linked income lost (at current rates).

So what should I do?

Check your NI record

The first thing to do is check your State Pension Forecast and NI record, which can be done through HMRC’s online service, the HMRC app or by requesting a paper statement.

This will tell you if you are on course to achieve a full state pension, based on your NI record to date and likely future contributions taking account your age and estimated retirement date.

If there is likely to be a shortfall, it will show you where the gaps are in your NI record and the cost for each year of filling these by making Voluntary NI Contributions – more on that in a moment.

Before looking at Voluntary NI Contributions, I would advise that you scrutinise any gaps and make sure these are correct.

I’ve seen many cases where NI credits haven’t been correctly allocated to accounts, leaving huge gaps. For example, where carers have not applied for the credits they are entitled to or where parents aren’t aware that credits associated with receiving Child Benefit have been allocated to a partner or spouse rather than themselves. In the latter case it is possible to have these transferred by HMRC between parents/guardians to maximise their value – and while there is a stated time limit on how far back you can go, HMRC can and do use discretion.

The role of voluntary NI Contributions

Having established the gaps in your NI record and any nil-cost opportunities to correct these, it is time to look at Voluntary NI Contributions as a means of filling any remaining missing years.

However, this is not simply a case of paying to fill every gap identified in your NI record – do this and you could end up paying too much.

Calculate the potential benefits

First, look at how many qualifying years you already have and then think how many more years you are expecting to work and to continue paying NI contributions. The aim is to reach 35 qualifying years – once you reach this and are entitled to the full state pension, having additional qualifying years won’t increase the value of your state pension.

You should now be in a position to decide how many years you need to make voluntary contributions towards in order to fill the gaps and reach – or put yourself back on track to reach – your 35 years target.

Lastly, look carefully at your HMRC account and the list of missing years for which you are allowed to make Voluntary NI Contributions – you may see that for some of these years you have already made partial contributions and so therefore the cost to complete these years is less than that of a full year. You should start with this low hanging fruit and then go on to choose the minimum number of years to be paid at the lowest total cost.

Make the payment if necessary – HMRC recommends using the ‘pay by bank account’ option within its online service, which typically updates NI records within five working days.

Other considerations

For those who were contracted out of the additional state pension under the previous rules, calculating the benefits of voluntary contributions can be more complex. HMRC’s guide, Your State Pension Explained, provides additional details on these considerations.

For individuals who have lived or worked abroad, HMRC has also issued specific guidance on making voluntary NI contributions.

Take action before the deadline

With the 5 April 2025 deadline fast approaching, now is the time to review your NI record and take any necessary steps to maximise your state pension entitlement. If you are unsure about your options, seeking professional advice can help you make an informed decision about voluntary contributions.

At Westcotts, we are here to assist you with navigating these rules and ensuring you make the most of your state pension opportunities. Get in touch with our team for expert advice and support.