How many years National Insurance do you need to get a full state pension? Can you pay extra years if you don’t have a full National Insurance record? And can you stop paying National Insurance if you’ve already paid enough for a full state pension?
How many years National Insurance for a full state pension
Since April 2016, when the new state pension was introduced, you need 35 years of National Insurance (NI) to get the full state pension. However, it’s a bit more complicated than that.
Those 35 years of National Insurance must have been ‘contracted in’ in order to count fully.
If you have been contracted out at any time, you will not receive the full state pension amount if you have 35 years of NI.
If you built up more of a pension before April 2016 than the full amount of the pension (£164.35 a week in 2020 – 19), you got to keep it.
SAVVY TIP: Being contracted out meant that you and your employer paid a reduced rate of National Insurance. If you were in a final salary pension scheme, the employer had to make certain guarantees so that you wouldn’t lose out.
Were you contracted out or contracted in?
If you’ve been a member of a public sector pension scheme, or a private sector workplace pension that was a final salary pension or one based on an average of the salary you earned, you are likely to have been contracted out.
You wouldn’t have made an individual decision to contract out. Instead, the entire workplace pension scheme was either contracted in or contracted out.
When you joined the pension scheme, you may not have been told that you were contracted out. Or if you were, you would not have been told you would receive a lower state pension as a result.
SAVVY TIP: This way of being contracted out was abolished in April 2016.
There are two other ways that you may have been contracted out.
If you were in a ‘defined contribution’ workplace pension (i.e. a pension pot type pension scheme), this may have been contracted out. This practice was abolished in April 2012.
You may have chosen to pay a reduced amount of National Insurance, with the difference between this and the ‘standard’ rate being paid into a personal pension. This practice was abolished in April 2012.
Why weren’t you told about the effects of being contracted out at the time?
The reason that you would not be told you’d receive a lower state pension by being contracted out is that at the time it didn’t affect the basic state pension you received. Until April 2016, the state pension was divided into two parts: the basic state pension and the additional pension.
The basic state pension, which is the fixed amount that you would receive per week, was not affected by you being contracted out.
It was the SERPS or state second pension that you were ‘contracted out’ of. The additional pension was abolished for people who reach state pension age when the new pension was introduced on or after April 6th 2016.
SAVVY TIP: SERPS was related to how much you earned and not available to people who were self employed. Therefore, not everyone was entitled to a SERPS pension from the state in the first place.
How the new state pension is worked out
For people who start their working life after April 2016, they need 35 years of National Insurance to get the full state pension, which in tax year 2020 – 19, is £164.35 a week.
For people who reach state pension age after April 5th 2016, but who paid National Insurance before then. Your pension will be based on what’s called a ‘starting amount’. This is the higher of:
What you would have got at April 5th 2016 under the old system; this is a basic pension for 30 years of NI contributions plus any SERPS or state second pension you’ve already built up, OR
What you would get under the new system, namely a full flat rate pension for 35 years of contributions (reduced if you’ve paid less than 35 years of National Insurance) minus a deduction if you were contracted out in the past.
SAVVY TIP: If you were contracted out in the past, this means that even though you have 35 years of National Insurance, you won’t get the full state pension. However, you can pay extra years of National Insurance to try and fill in this gap.
Any National Insurance you pay after April 6th 2016 builds on this starting amount.
What does the online state pension statement tell you?
If you’ve tried to get an online state pension statement, it will tell you the number of full years of National Insurance you have, the state pension you’re currently on track to receive and how much you could get if you carry on paying National Insurance.
However, from information I’ve been given by Savvy Sam users, the DWP isn’t always giving the right information when it comes to being contracted out. I’m still trying to get to the bottom of this, but it’s taking far longer than I’d hoped.
Can you stop paying National Insurance if you have a full state pension?
Sadly the answer is no. National Insurance doesn’t only pay for your full state pension, but for the NHS as well. You have to carry on paying National Insurance, if you’re working and earning more than a certain amount, until you reach state pension age.
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