“Mind the gap between the State Pension train and accumulation platform.”
In this brief article, we will review the opportunity and provide some resources so that you can make an informed choice.
The end of the 2022-23 UK tax year (5th April 2023) is the deadline by which you can fill in any gaps in your UK National Insurance (NI) record dating back to 2006.
In the UK, the new State Pension was introduced on 6 April 2016 for people reaching the State Pension age from that date. To fully qualify for the new State Pension, you will require 35 years of contributions.
For those who have made contributions before 2016, ‘transitional arrangements’ apply so that their pre-2016 contributions will apply toward the new State Pension 35-year requirement.
Typically, a UK taxpayer may be able to fill gaps, subject to certain conditions (e.g. residency) in any NI gaps for the previous six years.
With the transition, a unique opportunity has been granted to fill in any gaps that may exist for the years 2006 through 2016. To check your UK National Insurance record, go to the link below. You will need a UK Government Gateway user ID and password to access your information.
We find that British-American households often have incomplete contributions due to moving between the two countries. It makes a lot of sense to check that you have maximised your contributions.
On 6 April 2023, the ability to strengthen your retirement train will be trundling down the track. If you have yet to evaluate the situation, you may be standing on the platform forever, wondering if you should have jumped on board.
Is it worth it?
A whole year’s contributions cost approximately £824 and will add up to £275 per year to your state pension before tax is deducted. Ignoring inflation, you will need to collect three years of your retirement benefit to break even. With pension cost of living adjustments, the breakeven could be sooner.
Who should consider filling in missing contributions?
Recognising that most of your state pension benefit will come from your current and future contributions is essential. If you are under 40 years old, it is reasonable to assume you will have 35 years of contributions from the combination of your recent contributions and the years ahead of you. Filling in any gaps will not likely be worthwhile.
If you are over 40 and eyeing retirement, you should check your record and do the math. The additional benefit can make a big difference.
What does this mean from the US perspective? I have US Social Security; will this impact my US Benefit?
Good for you for asking this question! As an ex-pat, this reflective question should be a Pavlovian response each time you are presented with UK financial advice.
You may remember our old friend, the Windfall Elimination Provision (read more here) After researching and calling the two country’s social insurance departments, we can confirm that any increased benefit received by making UK NI catch-up contributions will not be impacted by WEP.
How do I get started?
Contact the Future Pension Centre
Phone: 0800 731 0175
State Pension Forecast: https://www.gov.uk/check-state-pension
Check your NI record: https://www.gov.uk/check-national-insurance-record