Should I Pay Voluntary National Insurance Contributions?

Written by Karen Bryan

My husband Demetrius received a letter from HM Revenue & Customs asking if he wanted to make a voluntary National Insurance Contribution to make up the gap in the 2009-10 tax year.  Demetrius took early retirement and has paid 25 out of the 30 years of National Insurance Contributions required for a full State Pension. The voluntary payment for the tax year 2009-10 would be £626.60.

If you assume that the State Pension is paid pro-rata, then missing 5 qualifying years would mean you only receive 5/6ths of the full State Pension. i.e. you lose 3.33% of the pension for each missing qualifying year. If you estimate a pension of say £150 a week, that’s almost £5 a week or £260 a year that you’d lose from your State Pension. Therefore paying £626.60 to make up each qualifying year sounds like a good deal, as you’d recoup that cash within three years of receiving the State Pension.

However, as Demetrius is aged 54 and should receive his State Pension when he’s 66, he may still enter into employment before he’s 66 and have to pay National Insurance Contributions then. If he made voluntary national insurance contributions for the next five tax years and then found a job before retiral, he could end up paying more NICs than necessary to receive a full State Pension.

Therefore I think he’ll wait until he’s 61 to start making his voluntary National Insurance Contributions to make up his five missing qualifying years.

In summary, in my opinion you should consider paying voluntary National Insurance Contributions., on the assumption that you’ll live for a few years after state retirement age, you should get a good return on your investment.

As this article is based on my personal research and understanding, you may wish to take independent financial advice when planning for your retirement.

Update April 2014 – From 2016, 35 years of NICs will be required for a full State Pension. This means it’s going to double the cost for Demetrius to be entitled to a full State Pension. So much for trying to be a long term planner when the Government keeps changing the goalposts.