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  • Mr Paul Clifton

The State Pension and paying voluntary National Insurance contributions

Voluntary National Insurance contributions and the State Pension

Paying voluntary National Insurance can help to ensure that you have enough qualifying years to get the full State Pension. If you have gaps in your National Insurance contribution record, you might not receive the full State Pension. Paying voluntary National Insurance contributions may help to fill the gaps.

National Insurance contributions

There are four classes of National Insurance contribution:

Class 1 paid by employees

Class 2 paid by self-employed people

Class 3 voluntary for people wanting to fill gaps in their contributions record

Class 4 paid by self-employed people

Voluntary National Insurance

You can pay voluntary National Insurance to increase your State Pension entitlement, so long as you have not already accrued the maximum 35 qualifying years. Voluntary contributions can be paid for up to six years in the past only.

Cost of voluntary contributions

The cost to fill any annual gaps in your National Insurance record for the 2022-23 tax year are:

Type Cost

Class 2 £163.80

Class 3 £824.20

Where you pay National Insurance for previous tax years, you pay the current rate for those past years. If you are paying Class 2 contributions for previous years or Class 3 contributions for the previous two years, you only have to pay the amount originally payable for those earlier years.

People do not always have to pay the full amounts noted above, of £164 pa and £824 pa. If someone has been employed or self employed for only part of the year, or not earned enough in that work, and therefore has not paid enough Class 1 or Class 2 National Insurance to accrue a full qualifying year, they may only need to pay for part of that year, to make it up to a full qualifying year, by paying voluntary Class 3 contributions for that missing part of the year.

Somebody who has only been self employed for 51 weeks of the year, and has no other self-employment or employment in that year, would not have a full qualifying year. It would therefore only cost £15.85 of voluntary Class 3 contributions, for one week, to make up the full qualifying year.

Class 2 National Insurance

You pay Class 2 National Insurance contributions if you are self-employed. You normally pay this type of National Insurance if your profits are £6,725 or more in a year.

Starting up and running a small self employment business can be a cheap way of boosting your State Pension. This means running an unincorporated business, as opposed to an incorporated business, like a limited company.

Many people who run their own businesses through a limited company consider themselves to be self-employed. However, from a taxation perspective they are not. Individuals who run a limited company can pay themselves as salary, of at least £533 pm (£6,396 pa) and accrue a qualifying year towards their State Pension, through the Class 1 National Insurance scheme for employees.

The benefit of each qualifying year

Each additional qualifying year purchased equates to around an £275 pa in State Pension, based on the rates for 2022-23.

If you live for 20 years post State Pension age the amount you would receive would be over £5,500 for an initial cost of £165 or £825.

Whether you pay Class 2 or Class 3 will depend on your employment status. Only the self employed can pay the lower Class 2 National Insurance amount.

The cost of increasing your annual State Pension amount is very cheap for the self-employed. However, people can only pay the lower Class 2 amount for the years that they were actually self employed.

Who can pay voluntary contributions?


Type of National insurance payable

Employed but earning under £123 a week and not eligible for National Insurance credits

Class 3

​Self-employed with profits of £1,000 or less

​Class 2 or Class 3

​Self-employed with profits over £1,000 but less than £6,725

​Class 2 or Class 3

​Both employed and self-employed, with low earnings and low profits

​Class 2 or Class 3

Unemployed and not claiming benefits

​Class 3

Married woman or widow who stopped paying reduced rates

​Class 3

What you’ll get from a State Pension forecast and how to request one

A State Pension forecast will give you an estimate of your State Pension. This is based on your National Insurance record.

Your projected State Pension at State Pension age is based on whether you continue to pay National Insurance or receive National Insurance credits.

In 2016, the State Pension changed, from an earnings-related scheme to a fix amount per year scheme. You may have heard of SERPS (the State Earnings Related Pension Scheme) which changed to the S2P (State Second Pension). Both were earnings related pension schemes provided by the government. This means that the more you earn the greater your pension would be. SERPS and S2P therefore benefited people who earned the most. Under the new, and current, State Pension scheme everybody receives the same amount in State Pension for each full qualifying year. The latter scheme therefore benefits the lower paid.

Arrangements were put in place to ensure that people would not receive less than they would under the old system, using their own National Insurance record.

A State Pension forecast will also tell you whether you were ever contracted out of the additional State Pension under the old system.

You may have had the option in the past to ‘contract out’ (of SERPS) for a period of time. The logic at the time was that rather than paying your full National Insurance contributions to the state, part of your Class 1 National Insurance contribution could be paid into a private pension. Hopefully, once invested in your private pension fund, and with favourable investment return, you could generate a greater pension return yourself than relying solely on the state earnings related part of the State Pension.

Contracted out year will show on your State Pension forecast as a ‘Contracted Out Pension Equivalent’ (COPE). Contracting out could reduce the amount of your State Pension that you receive. Your National Insurance record may show that you have the full 35, or more, qualifying years of National Insurance contributions. However, your State Pension forecast may show that you are not eligible for a full State Pension.

Before 6 April 2016, you had to accrue 30 qualifying years to get the full State Pension. In addition, before 2016, the State Pension was made up of a fixed element, based on the number of qualifying years, together with an earnings-related part, based on your salary each year.

What to do next

Before you consider paying any voluntary contributions, it may be a good idea to request a State Pension forecast. Once you have your forecast, you need to find out if voluntary contributions will increase your State Pension entitlement at State Pension age.

Things to consider before you decide to make voluntary contributions

  1. If you claim Pension Credit, any increase in the State Pension would normally reduce your Pension Credit award. This often means that you could be no better off paying voluntary contributions.

  2. If you die before reaching State Pension age, you won’t get any State Pension.

  3. If you're in very poor health, or if you have a short life expectancy, and because it will normally take a number of years to break even on your initial payments, you might not get the benefit of an increased State Pension in relation to your payment.

  4. Paying voluntary contributions may not increase your State Pension e.g. if you already have the maximum qualifying years.

  5. Finally, an improved State Pension might mean you pay more tax.

Speak to us to discuss your options and the cost of making voluntary contributions.

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