Class 3A National Insurance is launched on 12 October 2015
People who reach state pension age before 6 April 2016 can now top up their state pension by paying a new class of voluntary National Insurance contributions (NICs) – Class 3A.
First announced in the 2013 Autumn Statement, the new Class 3A NICs went live on 12 October 2015. The opportunity to pay the top-up runs until 5 April 2017. Paying it can provide between £1 and £25 extra per week.
Who can pay Class 3A NIC?
Those eligible to use the top-up opportunity are:
- existing state pensioners, and
- people entitled to a UK state pension who have not reached state pension age but will do so before 6 April 2016. This means men born before 6 April 1951 and women born before 6 April 1953.
The Class 3A opportunity is aimed at women and other groups who have done less favourably under the existing state pension rules and have not previously been able to top up their pension. It will also provide an opportunity for pensioners to improve their retirement income by obtaining inflation-proofed extra additional state pension.
How to pay
The government has published a table showing amounts of the Class 3A voluntary contributions that contributors must pay to obtain an additional £1 per week of state pension. The amount of a Class 3A contribution reduces with age. Thus someone aged 70 can increase their state pension by £1 per week by paying £779.
The government has said that Class 3A NIC rates have been set to ensure an equitable deal for both individual contributors and taxpayers.
The Class 3A NICs are paid as a lump sum. There is a cooling off period of 90 days from payment during which a refund can be obtained; this applies also to the estate of a person who dies during that period.
The government’s State pension top up web page has details of how to apply and a link to a calculator.
Class 3A options
The additional pension purchased with Class 3A NIC:
- will increase in line with the Consumer Price Index (if living in a country where UK state pensions are inflation linked),
- will be inheritable on death, ie a surviving spouse will be entitled to at least 50% of the additional pension,
- will be taxable, and
- will be taken into account in any assessment of income-related means-tested benefits, including pension credit, housing benefit and help with council tax.
As this is a potentially complicated area, those considering Class 3A top-up should do the sums and it may be best to take advice. Here are some things to think about:
For people who have gaps in their contributions record (ie not enough years), it may be better voluntarily to pay Classes 2 or 3 NIC. See the government’s guidance on voluntary payment of NIC. Note that the ability to pay Class 2 NIC voluntarily rather than the more expensive Class 3 is restricted to the self-employed with small profits or losses and to certain people living and working overseas.
Class 3A top-up is probably best for people reaching state pension age before April 2016 who have a shortfall in their state pension and some spare money that they might consider using for extra retirement income; for those (mainly women) who did not manage to accrue rights to the additional state pension while they were working; for the self-employed who were excluded from the additional state pension system altogether; and for lower earners who lost out because the additional state pension was earnings-related.
It might not be so good for people in ill health and therefore with a short life expectancy because they will not receive the additional income for as long as a more healthy individual. Similarly, someone who is single and does not need provision for a surviving partner might not find this such an attractive deal.
An alternative for those who are not yet receiving their state pension is to defer receiving it. According to the government’s guidance on deferment, those who delay claiming state will receive an extra 1% for every 5 weeks that the claim is delayed. This is the same as 10.4% for every full year that claiming is delayed.