Before 6 April 2016 the State Pension comprised two parts (the Basic State Pension and the Additional State Pension (also known as the State Earnings Related Pension Scheme or SERPS)). At the time there were two rates of Class 1 National Insurance Contributions (NICs) depending on whether the pension scheme was ‘contracted in’ or ‘contracted out’ of the Additional State Pension.
Prior to 6 April 2016, the Armed Forces Pension Schemes (AFPSs) were ‘contracted out’ of the Additional State Pension, and as such Service personnel paid lower Class 1 NICs and were entitled to the Basic State Pension only – but AFPS benefits more than made up for the absence of the Additional State Pension. From 6 April 2016, NICs for Service personnel (and other people who were members of ‘contracted out’ pension schemes) were increased by 1.4% of pay when the Single Tier Pension (New State Pension) was introduced.
To qualify for the full amount of State Pension, an individual requires 35 qualifying years on their National Insurance (NI) record. Having been contracted out of the Additional State Pension, personnel who served in the Armed Forces before April 2016 made lower NICs and as a result their ‘starting amount’ post April 2016 was lower than those who were not contracted out. Not all of the 35 qualifying years need to be at the full rate to qualify for the full New State Pension, but a proportion of them will need to be. This will depend on the starting amount in April 2016.
You can check when you will qualify for your State Pension and if you are on track to receive the full amount via the HMRC website at this link. To log-in to the site, if you have not done so previously, you will need to set up a Government Gateway account which you will be prompted to do when you first sign-in. Once you access the HMRC site you will be able to navigate via the ‘Your National Insurance and State Pension’ tab and ‘View Your State Pension Summary’ to check how many more years of NI you will need to pay to qualify for the full New State Pension.
If you have gaps in your NICs you can make up your contributions by either working and paying NI, or paying voluntary NICs. However, it is not possible to make a top-up payment to make-up the contracted-out shortfall. You have until 5 April 2025 to make voluntary contributions to make up for gaps between 6 April 2006 and 5 April 2016. After 5 April 2025 you will only be able to pay voluntary NICs for the past 6 years.
If you are considering paying voluntary NICs, we recommend that you ring the Future Pension Centre on 0800 731 0175. They will check what you can buy back and give you advice about whether it is worth the expenditure.
