Top up your state pension today and save £1,232

At £90.70 a week, the basic State pension doesn't sound like an awful lot. But it's still a good idea to do everything you can to benefit from the full amount. And the quicker you act the better, especially if you're about to retire.

It's a huge concern that around 70% of women and 15% of men aren't entitled to the maximum State pension in retirement. This is because they haven't paid sufficient national insurance (NI) contributions during their working lives.

Thankfully, the government has made it easier for you to build up your entitlement to the full State pension. Below is a very quick summary of how the rules have changed:

Current rules if you reach State pension age before 2010

You'll need to pay NI contributions for a minimum number of tax years to qualify for the full State pension. For women who reach State pension age before 2010 the minimum number of years is 39, while for men the minimum is 44.

You can earn a reduced State pension if you don't have enough qualifying years. A qualifying year is a tax year when NI contributions have been paid. But, if you have less than 10 qualifying years for a woman, or 11 qualifying years for a man, you won't normally be entitled to any State pension benefits at all.

Paying NI contributions for 39 or 44 years is a pretty tall order for many people, particularly for women who have taken career breaks to bring up a family.

New rules if you reach State pension age after 2010

If you reach State pension age after 2010, the number of qualifying years required for the full State pension will be reduced to just 30 for both men and women. Each qualifying year you have will count towards 1/30th of the full pension. So, even if you only have one qualifying year, you'll still get something.

In this way, building up an entitlement to the maximum State pension will be a lot easier to achieve.

What happens if I haven't paid enough NI?

A lot of people have gaps in their NI record where they haven't paid sufficient contributions. But there is a way you can make up for some of those missing years. You can improve your entitlement to the State pension by paying voluntary NI contributions out of your own pocket. (Note that voluntary NI contributions are known as class 3).

The government will now allow you to buy up to an additional six years to fill in the gaps in your NI record. Payments must be made within six years of the year you want to buy back. (There are special rules which cover the tax years from 1996/97 to 2001/02.) You can still buy missing years even if you have retired and you are already receiving State pension benefits.

For more information on topping up your State pension, read this article.

How much do voluntary NI contributions cost?

To buy back a missing year on today's rates will cost you £421.20. But don't forget the rates change each year. From the beginning of the new tax year - 6 April 2009 - the cost will step up to £626.60.

So, if you've been thinking about buying some extra years, I suggest you get your skates on before the new higher rate arrives in less than four weeks! If you buy six missing years at the current rate, it will cost you £2,527.20. But wait until after 6 April and the cost rises to a whopping £3,759.60 - that's an extra £1,232.40, which you could easily save by acting now.

Why should I pay voluntary NI contributions?

Quite simply, paying voluntary NI contributions will entitle you to a bigger State pension. Of course, if you have adequate pension provision of your own, you may decide topping up the State pension isn't necessary.  

If you retire before April 2010, buying an extra year could entitle you to another £120 a year for women or £107 a year for men in State pension for the rest of your life. That's as long as you have the minimum number of qualifying years - that is,10 for a woman and 11 for a man.

What are the risks?

• If you're likely to be on a low income during retirement, buying back extra years may not help you. If you qualify for the Pension Credit - or think you might - you'll receive a minimum income of £124.05 a week (based on current rates) anyway, so you'll effectively get the full State pension even if you haven't paid enough NI.
• If you're in poor health, you may want to think twice before buying missing years. You may not survive long enough to make it worthwhile.
• If you're more than a year off State pension age, don't worry too much about buying extra years. Remember, after 6 April 2010, you'll only need 30 qualifying years. If there's plenty of time to reach that target, don't waste your money unnecessarily.
• You may be entitled to extra State pension through your spouse's NI record. Check this out to make sure you don't buy any extra years you won't actually need.
• Don't forget, State pension rules could be changed at any time which may cancel out the benefit of buying extra years.

Above all, get a State Pension forecast. This will tell you whether paying voluntary NI contributions will improve your entitlement to the State Pension. You can do that here.

And finally, to buy extra years, call The Pension Service contributions helpline on 0845 600 6669.