State pensioners across the UK have expressed outrage after being instructed to pay up to £3,000 to increase their retirement income, despite having already worked and paid National Insurance for over four decades.
The case of the 40-year contributor
One retiree, named Howard, detailed his experience in a letter to the Telegraph. He stated he worked continuously from 1970 until his retirement at age 55 in 2010, amassing over 40 years of National Insurance (NI) contributions. He began receiving his state pension in May 2020.
However, upon checking his online state pension forecast, he was surprised to learn he needed to make further payments to reach the maximum amount available to him. "I was in a scheme which was contracted out, so I am aware that this results in a smaller pension," Howard explained, referencing a common historical workplace pension arrangement.
£3,000 paid for 'voluntary' top-ups
After several phone calls yielded vague answers, Howard was advised to buy four additional years of NI contributions for the period 2016 to 2020. He complied, paying just short of £3,000 voluntarily.
"Have I been duped into paying additional NI contributions, despite having paid in for over 40 years?" he fumed. "I have 41 years of contributions, plus four years which I was told to buy – and yet my state pension is still only just over £200 per week."
Expert analysis and the break-even point
Personal finance expert Charlene Young responded to the query. While noting she did not have all the details, she advised that claiming a refund might not put Howard in a better financial position.
She clarified the mechanics of such top-ups: Buying a full year's top-up for 2019-20 would have cost around £825, potentially boosting the annual starting pension by roughly £260. It then takes approximately three to four years after claiming the state pension to 'break even' on that voluntary payment.
Ms Young offered a crucial reassurance for those concerned: "If HMRC accepted a refund request and it was going to reduce your state pension, they’d write to you to outline the reduction and ask for your permission to proceed before doing so."
The situation highlights the ongoing complexity of the state pension system, particularly for those who were 'contracted out' of the additional state pension during their working lives, and the significant sums retirees are sometimes asked to pay to fill gaps in their record.
