State Pension top up: Class 3A voluntary national insurance contributions
Aspects of voluntary NICs.
At AVASK we can advise individuals on aspects you need to consider before making voluntary national insurance contributions. Here are some of the issues that you should be aware of.
The government is providing a one-off opportunity to allow existing pensioners and those reaching State Pension age before 6 April 2016 to increase their additional State Pension. This will be achieved by payment of Class 3A voluntary national insurance contributions (NICs), which will improve their retirement income by obtaining inflation-proofed extra additional State Pension.
The opportunity to pay will be available from 12 October 2015 to 5 April 2017 and there are two entitlement conditions:
- Contributors must have entitlement to a UK State Pension;
- They must reach State Pension age before 6 April 2016.
Further details of the measures have been announced, including:
- The amount of a Class 3A contribution (which reduces with age);
- Specifying that one unit of Class 3A contributions will result in £1 per week of additional State Pension;
- Setting a £25 a week maximum additional State Pension that can be obtained through payment of Class 3A contributions;
- Providing for a cooling off period of 90 days from payment during which a refund can be obtained; applying also to the estate of a person who dies during that period.
The additional pension purchased with class 3A NICs:
- will increase in line with CPI inflation;
- will be inheritable on death, i.e. a surviving spouse will be entitled to at least 50% of the additional pension;
- will be taxable;
- will be taken into account in any assessment of income related means tested benefits, including pension credit, housing benefit and help with council tax.
The measure will apply to the whole of the UK but this is dependent upon the Royal Assent of the Northern Ireland equivalent of the Pensions Act 2014 to allow for the increase in the additional State Pension.
The government has set up a State Pension top up calculator, which can be found here.
Some examples are given in the table below. Please note that the contribution amounts are estimates:
|Age at payment date||Rate for each additional pension unit of £1 per week||Extra units required||Lump sum contribution (£)|
Individuals should consider making Class 3 contributions to cover gaps in their Basic State Pension provision, where possible, before making Class 3A contributions. These may give a better return than the figures above.