Is it worth paying Class 3 voluntary contributions? On today’s blog, we outline all the intricacies about voluntary National Insurance Contributions (NICs).
(5-minute read)
We will cover:
- How National Insurance Contributions help boost your State Pension
- Why you should fill in any gaps in your NICs
Is it worth paying voluntary NI contributions?
Voluntary contributions help you increase the number of qualifying years for your state pension, however, many situations might’ve gotten in the way of your work history.
In this guide, we’ll walk you through some of the intricacies of voluntary contributions, and the situations that influence them.
Firstly, you may be wondering when it’s worth paying voluntary National Insurance (NI) contributions to boost your state pension.
You could benefit if…
- You’re close to State Pension age and don’t have enough qualifying years to get the full State Pension
- You know you won’t be able to get the qualifying years you need to get the full State Pension during your working life
- You’re self-employed and file Self Assessment tax returns, but you don’t have to pay Class 2 contributions because you have low profits
- You live outside the UK, but you want to qualify for some benefits.
Keep in mind that if you have already reached the required number of qualifying years, making additional voluntary contributions may not be necessary.
You need at least 10 years of NI contributions for any State Pension, and 35 years qualifies you for the full State Pension.
To determine whether making voluntary contributions is right for you, you should check your National Insurance record.
This will help you understand your retirement plans and make informed decisions about your financial future.
What counts as a full year for NI contributions?
What counts as a full year for National Insurance (NI) contributions? Here’s what you need to know:
- A qualifying year is a tax year (April to April)
- You need to have paid, or been credited with enough, National Insurance Contributions (NICs) to make that year count towards your Basic State Pension
Paying National Insurance when not working
Your National Insurance (NI) entitlement is not solely based on employment.
Various circumstances can result in accumulating NI qualifying years to go towards your pension, though there may be some issues regarding addition of NI years when claiming universal credit.
However, some NI credits must be manually claimed to compensate for gaps in NI records.
Consider the following situations to determine whether you may be eligible for such credits:
- Caring for a child in the family: You may be eligible if you’re between 16 and state pension age and the family member is under 12 and not your child
- Statutory sick pay: If you’re on it and not earning enough for a qualifying year
- Unemployed and actively looking for work: You don’t have to be claiming jobseeker’s allowance, but you need to prove that you were looking for employment
- Employment and support allowance: If you’re eligible for it but not claiming it
- Caring for a sick/disabled person: If it’s for at least 20 hours a week
- On jury service: If you’re on it and not self-employed
- Wrongly imprisoned: As long as your conviction has since been quashed
- A foster carer (kinship carer in Scotland): Since 6 April 2010
- On statutory maternity, paternity or adoption pay: If you’re on it and won’t earn enough for a qualifying NI year (additional statutory paternity pay also counts)
- Spouse of a member of the armed forces: If you’re married to, or a civil partner of, a member of the armed forces and went with them on an overseas posting (additional eligibility rules apply here)
- On a Government-approved training course: If you’re over 18 and not sent on the course by Jobcentre Plus
To claim these credits, you need to manually apply for them. You can find full information on how to do this on the Government’s national insurance credits page.
By claiming any NI credits you’re due, you can fill gaps in your record and ensure you receive the benefits you’re entitled to.
Class 2 or Class 3 National Insurance
The amount you pay in voluntary contributions will depend on whether you choose to pay Class 2 or Class 3 contributions, and whether you’re entitled but not liable to pay.
By doing some calculations and checking your NI record, you can determine if paying voluntary contributions is a worthwhile investment for you.
Here’s what you need to consider:
- If you have not paid enough Class 1 or Class 2 contributions to qualify for a full State Pension, you may be able to make up for the shortfall by paying voluntary Class 3 contributions.
- If you have already reached 35 qualifying years (or will do so by the time you reach state pension age), there’s no benefit in paying voluntary contributions. However, if you have less than 35 years, it may be worthwhile to increase your state pension. Likewise, if you will have some qualifying years but less than 10 by state pension age, it may be worthwhile to pay enough voluntary contributions to secure a minimum pension.
- You can pay Class 3 contributions at £17.45 per week in 2023/24. This means that to increase your state pension by 1/35th, it will cost £907.40 per year.
- Normally, Class 3 contributions must be paid within six years from the end of the tax year to which they relate – although extended time limits apply in certain cases.
Class 2 voluntary contributions vs Class 3
So when are you liable to pay Class 2 and Class 3 contributions?
- Class 2 National Insurance contributions are payable if you’re self-employed and your profits exceed £6,725 a year.
- If you’re entitled but not liable to pay Class 2 contributions, paying Class 2 contributions voluntarily is a cheaper option than paying Class 3 contributions at £3.45 per week for 2023/24 rather than £17.45 per week.
- By paying Class 2 or Class 3 voluntary contributions, you can cover gaps in your National Insurance record, however the latter allows you to do so regardless of your employment status.
How to pay voluntary National Insurance contributions
If you’ve decided to pay voluntary Class 3 contributions, you can spread out your payments over several months.
However, if you have any gaps dating back more than six years, you must fill them in by 31 July 2023.
This means that if you have any gaps in your NI record that go back more than six years, you must make the payment for those years before the deadline of 31 July 2023.
If you don’t make the payment by the deadline, you won’t be able to fill in those gaps and they’ll remain on your NI record, which may affect the amount of state pension you receive.
Keep in mind that the payment can take up to 60 days to process if you’ve yet to receive your State Pension. You can check your NI record to ensure the relevant gaps have been filled once you receive your State Pension.
If you’re claiming your State Pension, HMRC will contact the Department for Work and Pensions (DWP) and request that it conduct a benefit review. While your State Pension payment will not rise immediately, any increase should be backdated to the date you paid the voluntary contributions.
Bear in mind that if you reached or will reach State Pension age after 5 April 2016, the maximum number of years you can buy is 16 years, and from 31 July 2023, you’ll only be able to top up the previous six years.
Time is ticking, so make sure to fill in any gaps in your NICs before it’s too late.
Class 3 national insurance reference number
Here’s how to pay Class 3 NI contributions:
You’ll need a reference number from HMRC to ensure they’re added to your NI record.
You can get this reference number by calling the National Insurance helpline or by applying online.
Once you have your reference number, you can make the payment through your bank, either online or in-branch, to the HMRC bank account.
Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.
Sending an e-mail is simple too, just fill out this short form and we’ll get back to you!
Kind regards Ilyas