Buying back years to boost pension

Thursday, 12 March 2009 07:00

Workers have less than one month left to buy back missing National Insurance (NI) contributions before the government hikes up the cost to buy back one year from £421.20 to £626.60.

Up to six years can be bought back, if the person meets the qualifications, which are laid out by HM Revenue and Customs on its website.

Currently, buying back a missing NI contribution costs £8.10 per week and the full basic State pension for a qualifying person is £90.70 a week.

According to Friends Provident, 70 per cent of women and 15 per cent of men do not qualify for the full pension amount. Despite this, 57 per cent of adults are planning to solely or partly use the state pension to fund their retirement.

The rate increase is part of an overall change to state pensions entitlements made by the government. From April 2010 less 'qualifying years' of NI contributions will be required, but the cost of buying missing years will go up next month.

Martin Palmer, head of corporate pensions marketing at Friends Provident said: "Up to half a million women who took career breaks to raise a family in the 1970s or people who worked abroad for a number of years could be affected by this cost increase."

For anyone reaching state pension age before April 2010, the number of years of NI contributions needed to qualify for a full basic pension are 39 years for women and 44 for men. To receive any kind of benefit, at least 25 per cent of those years are needed.

If state pension age is reached after April 2010, only 30 years are needed to qualify for a full pension and any percentage of those years will qualify the retiree for some level of payout.

Buying back even one extra year for a woman retiring before April 2010 will increase her yearly payout by £120, or £107 for a man, according to Friends Provident.

Alison Clarke spokesperson for the Department for Work and Pensions said benefits will also be visible for those retiring after the 2010 change.

"A woman reaching the state pension age in 2011 who buys back six years will see her weekly benefit increase from about £76 to about £95," she said.

Despite the obvious perks of buying back years, Ms Clarke said everyone needs weigh the value of buying back years individually.

"We think about 75 per cent of those who will benefit will be women, but anyone who thinks they would qualify should look into it," she said.

Johanna King

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