Buy state pension for £800 and get £7,653 MORE retirement income – astonishing 850% return

Pensions and savings: Interactive Investor expert gives her advice

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You could get a staggering return on your money if you do. Arguably, buying extra State Pension is one of the best investments of all, but it is not right for everybody.

The State Pension is not a fixed sum that everyone gets regardless. You have to build up your entitlement.

To get the maximum new State Pension, paid to those who retired from April 6, 2016, workers need to make a total of 35 years of qualifying National insurance contributions.

For every year you fall short, the State Pension is reduced by 1/35th.

The current new State Pension is now worth £185.15 a week, which adds up to £9,627.80 over a full year.

If someone only makes 34 years of NI contributions, they will get £275.08 less income each year. That’s a hefty loss for just ONE missing year of State Pension.

If you only make 30 years of qualifying contributions, those lost five years will cut your State Pension by £1,375.40 a year.

This annual loss will rise every year, as the State Pension increases.

So it really pays to get the maximum amount, says Becky O’Connor, head of pensions and savings at Interactive Investor.

As we wrote on Saturday, everybody should get a State Pension forecast, to find out whether they will get the maximum amount.

Those heading for a shortfall have two ways to make it up. The FIRST is to see whether they are eligible to claim NI credits, as these won’t cost a penny.

NI credits will cover any period when you were unable to work and claimed benefits such as working tax credits, jobseeker’s allowance and universal credit.

You may also be able to claim them if you were raising a family or acting as a carer.

O’Connor said NI credits should be issued automatically, but some have to actively claim them, including those on carer’s allowance who cared for between 20 and 35 hours a week.

Those who don’t qualify for NI credits could plug gaps in their contributions record by making Class 3 voluntary NI contributions instead, O’Connor says.

You DO have to pay for these but she says: “The return on your money can be astonishing.”

Class 3 voluntary NI contributions can plug any State Pension shortfall for those who were employed but had low earnings.

They can also work for people who were unemployed but did not claim benefits, and the self-employed who made no contributions due to small profits.

Those living or working outside the UK could also boost their State Pension in the same way.

Voluntary Class 3 payments cost £15.85 a week, which adds up to £824.20 for each full year you buy, says Stephen Lowe, director at specialist retirement advisors Just Group. “Each year you buy will give you 1/35th of State Pension. This is currently worth an extra £5.29 a week, or £275.08 a year.”

Over the first three years, this will add up to at least £846.05 extra in total, assuming the State Pension increases by 2.5 percent each year (it could rise by more).

Lowe says: “This means that you have more than got your money back in just three years, which is a brilliant return.”

The benefits roll up over time, depending on how long you live after you start drawing your State Pension.

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The typical pensioner lives for 20 years after retiring. For those who do, that original £800.80 investment could generate around £7,653 in total extra State Pension.

Again, this assumes the State Pension grows by 2.5 percent a year on average over that period.

Lowe said this is not right for everyone. It all rests on how long you live after drawing your state pension. “Those who die a year or two into retirement could get less back than they put in, so think twice if in poor health.”

Buying extra years could backfire if you lose out on means-tested state benefits as a result, particularly Pension Credit, which increases a single pensioner’s income to £182.60 a week or £278.70 a week for couples.

If you are likely to amass 35 years of NI contributions by the time you retire, again, this option isn’t for you.

That’s because you cannot buy MORE than the maximum new State Pension. 

You can usually only make voluntary NI payments for gaps in the previous six years, although the Department for Work & Pensions (DWP) has temporarily extended this period.

Visit to check your NI record, see if you are eligible to make voluntary contributions, and how much it will cost. Or contact the Future Pension Centre at on 0800 731 0175.

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