Six reasons not to top up your state pension

You may have heard about the 5 April deadline to buy National Insurance credits and top up your state pension.

This is the window to fill any gaps in your National Insurance (NI) record going back to April 2006.

If you miss the deadline, you’ll only be able to buy NI credits for the past six tax years.

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Thousands of people have opted to take advantage of the special window and boost their state pension. According to HMRC, 83,000 people have topped up over the past 12 months, worth £98 million in total. The average online payment is £1,765.

However, buying NI credits and topping up your state pension is not right for everyone. Jon Greer, head of retirement policy at Quilter, a wealth manager, tells MoneyWeek: “While in many cases plugging gaps can be an excellent way to secure a higher retirement income at a relatively low cost, there are instances where doing so may not be in someone’s best financial interest.”

Here are six scenarios where topping up is unlikely to be worth it.

1. You already have 35 years of contributions

You need at least 35 years’ National Insurance contributions (NICs) to get the full new state pension. If you already have this, there’s no point topping up.

Greer notes: “First and foremost, those who already have the 35 years of qualifying contributions required for a full state pension typically have little to gain by making voluntary top-ups. The additional contributions won’t increase their pension entitlement, meaning they risk spending money for no return.”

Those in their 50s may already have the full 35 years of NICs. For example, a woman who started work at age 18, and has worked 35 years paying NICs, would now be aged 53.

You can check your state pension forecast on gov.uk to see if you already qualify for the full state pension.

2. You are young and working

Many people will gain the full 35 years of NICs during their career.

If you plan to carry on working and are not near the state pension age of 66 — rising to 67 by 2028 and 68 by 2046 - it probably won’t make sense to buy extra credits.

Again, you can check on the government’s state pension forecast service. It will tell you the date you’re due to get your state pension and how much you’re forecast to get.

If it says £221.20 a week, this is the current amount awarded under the full state pension, meaning it’s expected you’ll have 35 years of NICs, even if you don’t have them yet.

The forecast also states what you’d get if you retired tomorrow with your current NIC record, such as £160.31 a week, and how many more years you’d need to contribute to get the full £221.20.

For example, if you’re aged 45 and it says you need another 10 years, you may feel fairly confident that you’ll work for at least another decade - and therefore don’t need to spend money buying extra NI credits.

3. You’re eligible for Pension Credit

If you’re on a low income and eligible for Pension Credit, it probably won’t make financial sense to top up.

Helen Morrissey, head of retirement analysis at the investment platform Hargreaves Lansdown, comments: “You may find that by handing over money for a bigger state pension you remove your eligibility for benefits such as Pension Credit, which you would otherwise be entitled to.

“Pension Credit not only tops up your income but also acts as a gateway benefit to other support so you may potentially miss out on thousands of pounds per year.”

Greer echoes this, saying people who are eligible for Pension Credit in retirement “should tread carefully”.

“Pension Credit tops up income to a minimum level [£218.15 a week if you are single, or £332.95 a week for couples], so paying voluntary NI to boost a state pension may simply reduce their entitlement to this means-tested benefit, leaving them no better off overall. The same applies to those who may be eligible for other income-related benefits, as any additional pension income could be offset by reductions elsewhere.”

4. You’re in poor health

As well as your income, you also need to consider your health. Buying NI credits may not make sense if you’re unlikely to live to state pension age, or much past it.

According to Steve Webb, partner at the pensions consultancy LCP and a former pensions minister, those who fill in gaps usually make their money back within four years.

So depending on your life expectancy, it may not be worth topping up.

Greer comments: “While the state pension provides an inflation-linked income for life, individuals with serious health conditions or reduced life expectancy may not receive enough payments to justify the upfront cost of voluntary contributions. In these cases, directing funds elsewhere - such as personal savings, ISAs, or private pension - might be a more flexible and efficient use of capital.”

5. You look after children

It may be possible to get NI credits and boost your state pension without paying for them.

Morrissey explains: “Before you hand over any money to top up your state pension, you first need to check whether any of those gaps can be filled by a benefit that comes with an automatic NI credit.

“For instance, you may have been at home caring for a child but not claiming child benefit. In such cases, it is possible to backdate a claim and get those credits topped up for free.”

Credits are available to those who are not paying National Insurance because they are unemployed, caring for family or on parental leave.

This includes grandparents looking after grandchildren. These Specified Adult Childcare Credits let a parent receiving child benefit transfer the National Insurance (NI) credit to an eligible family member such as a grandparent.

6. You would pay more tax

Another situation where you might want to think twice about topping up your state pension is if it pushes you into a higher tax bracket.

“You may find that boosting your state pension tips you over a tax threshold so you will need to consider carefully whether the top-up is worth your while,” comments Morrissey.

If, for example, you paid £907 to fill in the full 2023-24 tax year, this would boost your state pension by £6.32 a week. Over a year, that’s an extra £328.64. But if that cash was liable for 40% tax - because you had other retirement income such as from workplace pensions - you’d only have £197.184 left.

You’d then need to live for four and a half years past state pension age to get your £907 back.

What to do if you’re not sure about topping up your state pension

If you’re not sure whether to top up your state pension the first thing to do is use HMRC’s state pension forecast tool to see how much you are due based on your age and if there are any NI gaps you can fill.

You can also check your National Insurance record through your Personal Tax Account, or on the HMRC app, where you can take a survey to assess your suitability to pay online.

“Paying voluntary contributions won’t benefit everyone, so it is key to contact the Future Pension Centre (if you are below state pension age) on 0800 7310175 who will be able to give personalised guidance and tell you if paying extra will increase your state pension entitlement,” says Greer.