Hundreds of thousands of public-sector workers entitled to retire at the age of 60 have a five-year window to make additional national insurance contributions (NICs) that will increase the value of their state pension, according to Royal London. The insurance company says more than 500,000 public-sector employees could benefit from doing this, but awareness of how to do so remains low.
This option exists because most public-sector schemes were, in the past, “contracted out” of top-up state pension schemes, such as Serps, and people such as civil servants, teachers and nurses paid fewer NICs than other workers. In April, these top-up schemes were replaced with a flat-rate state pension. Those with fewer NICs will receive less under this system.
Workers retiring at the age of 60 under the terms of their public-sector pension schemes wouldn’t usually have any further NICs to make, but have the option of doing so voluntarily until they reach the age of 65. These “Class 3” NICs would enable them to make good some of the shortfalls on their state pension and, says Royal London, they are set at such a low level that they represent excellent value.
A single year of voluntary Class 3 contributions would cost a 60-year-old around £733, but would qualify them for an extra £230 of state pension each year, once they become eligible to claim. Over the average 20-year retirement, an outlay of £733 therefore generates a windfall of £4,600. For someone making extra contributions for the whole five years, an outlay of £4,150 or so nets £23,000 over the subsequent two decades.