A frustrating loophole in Department for Work and Pensions (DWP) rules is preventing thousands of retirees from claiming their full state pension, even after working for 35 years. To receive the full new state pension, individuals must have made at least 35 years of National Insurance (NI) contributions and reached state pension age. However, due to how qualifying years are calculated, many find they fall short at the point of retirement.
How the Loophole Works
Sarah Coles, head of personal finance at Hargreaves Lansdown, explains: “There is a frustrating quirk in the way the rules work about how you qualify for a state pension. You need at least 10 years’ worth of NI contributions or credits to get any pension at all, and at least 35 years’ worth to get the full new state pension. But it doesn’t count from the second you turn 16 to the moment you qualify for the state pension. It’s based on tax years, so it counts from the 6 April before you turn 16, to the 5 April before you get to state pension age. You will keep paying National Insurance right up to state pension age, but only the payments up to the previous April count.”
This effectively means that if you are born in March, you could end up paying 11 months of NI contributions in the year before you reach pension age, but those contributions won’t count because you needed to have the right amount in the April before your qualifying birthday. As a result, you may have to wait an extra year or buy voluntary contributions to fill the gap.
Impact on Claimants
The loophole particularly affects those born later in the tax year. For example, someone born on 31 March might have worked for 35 years but only have 34 qualifying years on their NI record because the final year’s contributions are not counted until the following April. This means they are not entitled to the full pension at age 66.
Clare Moffat, pensions and tax expert at Royal London, advises: “If you have gaps in your National Insurance record you can usually buy voluntary contributions to fill them. Each year you buy could boost your state pension for life, so it’s worth checking your state pension forecast in advance, especially if you think that you might be around 35 qualifying years. If you do have a gap, then it’s worth considering a top-up.”
Alternatives to Filling Gaps
For those who cannot or choose not to buy voluntary contributions, deferring the state pension is an option. Ms Coles adds: “For every nine extra weeks you put off claiming your state pension after you’re first eligible, you’ll get another 1% of pension. This tends to pay off if you live longer than average, so if your state pension is falling short and your family tend to have longer lives, it could be an option.”
The DWP recommends that individuals check their state pension forecast online or via the Future Pension Centre to identify any gaps in their NI record and explore options to address them before reaching retirement age.
