How to Track Down Lost Pensions Worth Thousands
Millions of savers are facing an important deadline that could significantly enhance their future state pension payments. By April 5, individuals have the crucial opportunity to address any gaps in their National Insurance (NI) payments. Taking action now to fill in these gaps could lead to increased future state pension benefits.
This deadline marks the end of a temporary extension that has allowed people to make contributions for missing NI years dating back to the 2006/2007 tax year. To qualify for the full new state pension, individuals need to have 35 years of qualifying NI contributions, which currently amounts to £221.20 a week. Even a minimum of 10 years of contributions is necessary to receive any pension benefits at all.
Life events such as career breaks, time spent living abroad, or periods of self-employment with low earnings often lead to missing NI contributions. Therefore, making additional payments to cover these gaps can have a significant impact on future income. For example, purchasing one additional year of contributions costs £907 and can increase your state pension by £342 for each year of retirement. If you fill in the gaps from 2006/07 to 2015/16, you’ll pay the 2022/23 rates for contributions, which would be £824.20 to buy one year. This investment can be recouped within three years and has the potential to increase pension income by thousands over a lifetime.
In total, individuals may be able to boost their future state pension payments by up to £113.76 a week, translating to an annual increase of £5,915.92. However, action is needed quickly, as starting from April 6, the ability to make retrospective contributions will be limited to the past six tax years.
Brian Byrnes, head of personal finance at Moneybox, emphasizes the urgency: “According to the Pensions and Lifetime Savings Association (PLSA), over half of UK savers are at risk of falling short of their retirement income targets as set out by the 2005 Pensions Commission. With many individuals at risk of not saving enough for a comfortable retirement, it’s essential that savers explore all their options, whether that means finding lost pension pots or addressing gaps in their NI contributions. With just two weeks left to act, it is vital for everyone to assess their retirement finances.”
What Are the Different Types of Pensions?
Savers can quickly check how many NI credits they have accrued using the government’s online ‘Check Your State Pension’ forecasting tool at gov.uk/check-state-pension. This tool outlines options for making voluntary NI contributions to fill any gaps.
Mr. Byrnes advises, “It’s worthwhile to check before the deadline, as from April 6, you will only be able to make voluntary contributions for the past six qualifying tax years.” However, it’s important to note that backdating voluntary contributions may not be suitable for everyone. Mike Ambery, retirement savings director at Standard Life, cautions, “It’s crucial to consider your individual situation, as there may be various reasons why voluntary NI contributions wouldn’t be the best option for you, especially if you have enough time to make up the years without additional payments. Time is limited, and this is a significant decision. Reviewing your record and reaching out to the appropriate authorities before April 5 could lead to a much more secure financial future.”
While the deadline is approaching, there is some flexibility—those who secure a callback from HMRC before the deadline may still be able to make payments post-April 5. Nevertheless, prompt action is essential to avoid missing out.
What is National Insurance?
National Insurance (NI) is a form of tax on your earnings, or profits if you are self-employed. These contributions are crucial as they make you eligible for benefits such as the state pension. Generally, you will pay National Insurance Contributions (NICs) once you are over the age of 16 and earning above a certain threshold.
For instance, if you earn £1,000 a week, you will not pay anything on the first £242. Earnings above that amount incur a 10% charge on the next £725, which totals £72.50, followed by a 2% rate on the remaining amount, equating to an additional £33. For self-employed individuals, the rates are slightly different.
You can also receive National Insurance credits in specific circumstances when you are not working, such as if you are a parent claiming certain benefits. NICs are typically deducted automatically by your employer and sent to HMRC, so you won’t need to take any action. You can view your NICs on your pay slip. For those who are self-employed, NICs must be reported and paid during the self-assessment tax return process.
Check What You’re Owed
If you suspect you may be missing certain NI years, the first step is to check your State Pension forecast. You can do this through the government’s ‘Check Your State Pension’ tool available at www.gov.uk/check-state-pension. The tool is also accessible via the HMRC app, which you can download for free on the Apple App Store and Google Play Store. You will need to log in using your Personal Tax Account credentials. If you haven’t already created an online HMRC account, you can easily register at gov.uk.
This tool will inform you of how much your state pension could increase and which NI years you need to purchase to achieve this. You will be able to securely pay for these missing years online, but be aware that full payment is required upfront; setting up an installment plan for these payments is not an option. If you are already receiving your State Pension, you will need to contact the Pension Service at 0800 731 0469 for assistance.
Before committing to buying additional NI years, ensure that you check if you were eligible for any free credits during your working life.
Check for Credits
Before proceeding with voluntary contributions, verify whether the gaps in your contributions can be filled with free NI credits. It’s estimated that thousands of individuals are missing out on these credits, which could leave them financially disadvantaged in retirement.
For example, individuals receiving certain benefits may qualify for Class 1 credits, including parents actively claiming child benefit. To see the complete list of eligibility criteria for NI credits, visit gov.uk/national-insurance-credits/eligibility, where you can find information on the situations that allow for automatic claims and those that require active applications.
Topping Up Your Missing Years
In some scenarios, purchasing back years can prove to be highly beneficial. However, remember that these voluntary contributions come at a cost. If you choose to fill gaps between 2006/07 and 2015/16, you will be paying the 2022/23 rates for contributions, which amount to £15.85 a week, totaling £824.20 for one year of contributions.
Given that the state pension was £185.15 per week in 2022/23, this increase would yield an additional £5.29 per week or approximately £275 annually. While the total cost for ten years would be around £8,242, the potential annual increase in state pension could reach around £2,750. Over a 20-year retirement period, this could equate to approximately £55,000 before tax.
Individuals under the age of 73 can make voluntary pension contributions, as it is presumed that everyone below this age will be eligible for the new state pension. If you are under the state pension age, you can verify your state pension forecast by visiting gov.uk/check-state-pension to see if paying voluntary contributions would be advantageous for you. Additionally, you can reach out to the Future Pension Centre at 0800 731 0175 for more information.
If you have already reached the state pension age, connect with the Pension Service to determine whether voluntary contributions would benefit you. You can contact this service in various ways by visiting gov.uk/contact-pension-service.
How Does the State Pension Work?
Currently, the state pension is available to both men and women from age 66, with plans to increase this age to 67 by 2028 and 68 by 2046. It is a recurring payment provided by the government that most individuals begin receiving when they reach their State Pension age. However, not everyone receives the same amount, as the payment depends on individual National Insurance records.
For the majority of pensioners, the state pension constitutes only a portion of their retirement income, which may also include funds from workplace pensions, personal savings, and investments. The new state pension is determined by the individual’s National Insurance contributions record. To receive the maximum amount, individuals must have 35 qualifying years of NI contributions. These qualifying years are earned through employment or by receiving credits, such as those available for caregivers of children while claiming child benefit.
If you have gaps in your contributions, you have the option to top up your record by making voluntary National Insurance contributions. For those aiming for the old full basic state pension, a minimum of 30 years of contributions or credits is necessary, and at least 10 years of NI record is required to qualify for any state pension benefits.