Under current rules, anyone who comes under the new state pension system, which includes those reaching pension age after April 5 2016, can fill gaps in their national insurance (NI) record at favourable rates.
But these concessionary rates expire on April 5 2019 after which filling those same years could cost several hundred pounds more in total.
Jon Treharne, managing director of Shore Financial Planning is spearheading the campaign to encourage fellow financial advisers to draw this issue to the attention of their clients.
He said: “Many people will be unaware that the cost of filling historic gaps in their NI record is due to be hiked in April. I would encourage anyone thinking of filling such gaps and who has checked that they will increase their pension by doing so, to consider whether they would be best advised to top up before April 6.”
However, many IFAs including Aj Somal, chartered financial planner at Aurora Financial Planning, said this is standard practice.
He said: “I recommend all my clients to check their state pension contribution records to see if they should top up their contributions, particularly as favourable rates are available. A lot of clients are unaware that they have gaps in their records, so to check is good practise.”
Martin Bamford, chartered financial planner for Informed Choice, said life expectancy plays a role in determining whether it’s worthwhile from people to fill any NI gaps.
He said: “For someone with NI contribution gaps, who has a reasonable life expectancy, topping up the State Pension is usually an excellent return on investment. The big risk is longevity, as the money paid could be lost in the event of early death. But as a long-term financial planning strategy, it almost always makes sense to get a full record.
“Getting this done before April is a smart move into order to benefit from the current concessionary rate. Making up any gaps after April 5 is likely to cost hundreds of pounds more for the same benefit.”
This was echoed by Andrew Elson, chartered financial planner at Berry & Oak, who said: “Topping up state pensions can be a good thing for a lot of clients and the returns certainly seem generous. We encourage a lot of our clients to do this.
“The starting point is for the client to log on to the online personal tax account and see their contribution record and what capacity to top up they have. Our research shows they need to survive about 3 years from state retirement age, to make it worthwhile, which hopefully most clients of ours will.
“Those who are thinking of filling gaps, and – crucially – who have checked that they will boost their state pension by doing so, can save money by acting before the end of the current financial year.”
At present, anyone covered by the new state pension system with a gap in their NI record for any year from 2006/07 to 2015/16 has until April 5 2023 to fill those gaps. On the face of it, this means that there is no rush to do so. However, under a special concession, those who pay voluntary contributions by April 5 2019 qualify for special rates.
In 2019/20 the normal rate for buying back one week of NI contributions will be £15.
Jon Bean, chartered financial planner at Eldon Financial Planning, said he recommends that all clients obtain a state pension statement in order to find out where they stand as they approach state pension age.
He added: “In situations where they’re not working, or eligible to obtain credits in another way, via receipt of carer’s allowance or specified adult childcare credits for example, then it’s worth looking at ‘topping up’ where possible.
“In round terms the cost of buying a year post 2016/17 is £740 and could increase state pension by up to £245.
“For a non-taxpayer this means that the initial outlay could be recouped assuming just over three years survival post state pension age. For a basic rate taxpayer this is nearly four years, and for a higher rate taxpayer just over five.
“In essence it’s a good way to increase guaranteed income in retirement – which should increase with the triple lock – at a low cost.”
The warning come as Royal London has produced a guide to topping up state pensions, which explains more about the process.
Aamina Zafar is one of the UK’s leading financial journalists. She has previously worked as a senior reporter at FT’s Financial Adviser. The award-winning journalist writes regularly on the IFA community, mortgages, pensions and financial regulation.
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