Brits can get more cash in retirement by boosting their state pension , experts say.
It is even possible to get an extra £5,000 of state pension by paying £800 to the government - a 587% return on investment.
The trick is understanding how National Insurance (NI) payments affect how much state pension you get.
This sounds dry, but it's crucial to your quality of life in retirement .
That is because the actual amount of state pension you get depends on how much NI you pay.
NI contributions are a tax on earnings and self-employed profits paid by employees, employers and the self-employed.
You build them up throughout your working life to count toward your entitlement to certain benefits and the state pension.
You need 35 years’ worth of NI contributions to get the full new state pension of £179.60 a week, and usually ten years’ worth to get anything at all.
If you have a shortfall in NI, you get less state pension - but you can top up your state pension by claiming or buying more NI.
There are two ways to do this.
The first is to claim NI credits to cover any period when you were unable to work and claimed benefits such as Working Tax Credits, Jobseeker’s Allowance and Universal Credit, or were raising a family or acting as a carer.
Andrew Tully, technical director at Canada Life, said these should have been given automatically. “If unsure, check, as they can be backdated," he said.
In some cases, people have to actively claim NI credits, including those on Carer’s Allowance who cared for between 20 and 35 hours a week.
If you do not qualify for NI credits, you can plug gaps in your contributions record by making Class 3 voluntary NI contributions instead, says Becky O’Connor, head of pensions and savings at Interactive Investor.
You have to pay for these, but she says: “This is still well worth looking into as the return on investment can be astonishing.”
Class 3 voluntary NI contributions can plug the state pension shortfall for those who were employed but had low earnings.
They can also make up any shortfall for people who were unemployed but did not claim benefits, and the self-employed who did not pay contributions because they only made small profits.
Those living or working outside the UK could also bolster their state pension in the same way.
Voluntary Class 3 payments cost £15.40 a week, which adds up to £800.80 a year.
O’Connor says: “Each additional qualifying year that you generate will add 1/35th of state pension, which on the new state pension is around £5.29 a week from April 6, or £275.08 a year.”
That gives you £825.24 over the first three years, which means you have effectively got your money back.
O'Connor added: "Over the course of the typical 20-year retirement, you could get £5,501.60 in total extra state pension. That’s an incredible return of 587 percent.”
However, this depends on how long you live after drawing your state pension. Those who die relatively early will get a smaller return, which means those in poor health should think twice before buying extra pension.
There are also limits on the amount of extra state pension you can buy, O’Connor says. “You can usually only make voluntary NI payments for gaps in the previous six years.”
Other ways to boost your state pension
Check your state pension forecast: It is important to know how much state pension you're expected to get so you can plan for the future.
You can check your state pension forecast on the Gov.uk website - this will also tell you your state pension age.
Once you've done this, you'll know if you need to top up your state pension.
Claim child benefit: If you claim child benefit, you will receive NI credits that count towards your state pension in later life.
Under current rules, someone who receives child benefit for children under the age of 12 is also treated as if they had paid NI contributions for that week.
Anyone earning over £50,000 may be liable to pay a tax charge on their child benefit, known as the "High Income Child Benefit Charge" .
Earn over £60,000 and you'll need to pay back 100% of your child benefit - meaning you don't get anything.
Parents are encouraged to register for child benefit - even if they’re not eligible and don't want to claim the cash - so they don't miss out on NI credits.
Specified Adult Childcare Credit: Grandparents who have gaps in their NI record can apply for "Specified Adult Childcare Credits" for the time they spend looking after grandchildren aged under 12.
This is where working parents sign over their child benefit NI credits to someone else so it can count toward their state pension.
