NI Contributions for State Pension

MTC · 17 August 2004 at 1:52PM

Hi again - thanks for taking the time to work out the figures DD - I appreciate the situation a bit better now!

My only 'problem' is that I am currently tied into a non contributory (I think they pay 15% contributions) final salary pension with my employer. Surely there is no way to split this pension with my wife in my retirement to take account of her tax free allowance?

I think the best thing may be to start contributing £300 per month to a pension scheme for her to use up her £3600 tax free allowance (she doesnt earn just now). It means that we will have an income in our retirement that we will pay less tax on. Now I just need to find the best performing pension plan. Ahem!

Or, I could save the money for the next 40 years, and use the interest as a retirement income for my wife, which she won't pay tax on, because she has no other pension plan.

Thanks for the help - I think I'm going to think it out again..

Milarky · 17 August 2004 at 3:36PM

My wife has not worked, and is unlikely to do so (she will be near 60 by the time our youngest leaves home). She will have over 25 years of HRP from child benefit, however.

Will she be eligible for a state pension on HRP alone?

DiggingOut,

AFIAK, HRP merely reduces the number of qualifying years by a maximum of 20 (so, from 39 to 19 years) for a full pension. I'd need to go away and check the details, but I'm now concerned that your wife may be in that large group of married women [who started work before the system changed to its present form around 1977] who were put on a reduced stamp once they married and so where not advancing towards a state pension in their own right - merely their husband's. Fran [& co] over at 'benefits' would have more to say about that, I expect?

The standard suggestion is to 'get a pension forecast' which at least has the merit of being an official statement of her position.

....but you can always put all the 'joint' savings in her name to save on tax, can't you?

BTW, along similar lines, could anyone confirm [sorry, probably the wrong board - perhaps it should be [non-state] Pensions ... mostly (eh, Pal?) ] if there is any move to up the number of qualifying years from 44 to 49 for men [and woman born after 1955]? I heard of this from a friend, who was told this by another friend. It sounds unlikely but, like the removal of 50% of inherited SERPS recently, it could just be one of those long planned changes that no one has told the public about?

isasmurf · 17 August 2004 at 10:39PM

BTW, along similar lines, could anyone confirm [sorry, probably the wrong board - perhaps it should be [non-state] Pensions ... mostly (eh, Pal?) ] if there is any move to up the number of qualifying years from 44 to 49 for men [and woman born after 1955]? I heard of this from a friend, who was told this by another friend. It sounds unlikely but, like the removal of 50% of inherited SERPS recently, it could just be one of those long planned changes that no one has told the public about?

Are you sure your friend's friend isn't confusing things slightly. A man's working life (and a women's after 2020) is between 16 and 65, i.e. 49 years. You need to have paid NI contributions for 90% of this time (i.e. 44 years) to get a full state pension. AFAIK there is no plan to extend a person's working life, although there is a proposal in the Pension's Bill for an individual to delay getting their state pension and in return get a higher one or a lump sum when they do finally claim it.
Anyway back to the question, perhaps your friend's friend was confusing the working life with qualifying years?

DiggingOut · 17 August 2004 at 11:32PM

6700 odd at 22% tax saved compared with 18% extra tax relief.

Very simplistic but I would guess that using the tax free allowance up makes sense.

I suppose it depends on investment performance, since the 18% is now and the 22% is later....

Thanks all for the help. Will pursue the pensions forecast, good idea, Milarky.

J_B, the hardest work my wife does is putting up with me. ::)

Milarky · 18 August 2004 at 4:39PM

Are you sure your friend's friend isn't confusing things slightly. A man's working life (and a women's after 2020) is between 16 and 65, i.e. 49 years. You need to have paid NI contributions for 90% of this time (i.e. 44 years) to get a full state pension. AFAIK there is no plan to extend a person's working life, although there is a proposal in the Pension's Bill for an individual to delay getting their state pension and in return get a higher one or a lump sum when they do finally claim it.
Anyway back to the question, perhaps your friend's friend was confusing the working life with qualifying years?

Yes, I think I did express that poorly, sorry. My understanding was that the '90%' [44 years] rule might be the thing which was being ended, with a future requirement of 100% [of 'qualifying' years] to recieive a 'full' pension? That was my question - is there any move afoot to end the 'concession' which means that you can pay into the NI system for 5 years more than you 'have to' but gain no benefit by doing so? My suggestion was that any such change may be buried deep in some yet-to-be-activated regulation [like happened over the SERPS rule change]. Could be quite wrong... most likely am?

And of course [continuing this regretable lapse into the 'Franland' as it were] we might muse on whether the government already has plans to extend the state pension age to 70 simply by continuing the announced 'phasing' between 2010 and 2020 -affecting the ladies- in a 'seemless' manner between 2020 and 2030? This would mean that women AND men born after 1955 [currently due to reach state pension age after 2020] could be asked to retire at ages between 65 and 70 instead during the following decade? It's an obvious step to take, given that they could not bring forward such a change any sooner than the other one, and also would need to annouce it within the next few years to avoid confusion/anger etc.

DiggingOut · 18 August 2004 at 9:34PM

A couple more thoughts on this.

If a wife is getting a basic state pension, isn't that taxable income? Doesn't that mean that the tax-free allowance available to her for a stakeholder pension is not as high, and thus the amount needed to be saved for it is less?

Also, doesn't the fact that you are giving up something now (higher rate tax relief) for benefit later (basic tax relief after retirement) mean that it would be better to defer contributing to her pension until later and get the benefits of investing the extra amount now?

Am I missing anything here?

ianfra_2 · 30 August 2004 at 6:26PM

My wife is self employed and earning less than £80 per week, which is roughly the maximum earnings before NI contributions are charged.
She hasn't got sufficient conributions to get maximum pension (she's in her 50's) and would only get 60% of pension based on my contributions.
You have the option to buy up to 6 years 'back pay' of NI contributions at about £300 pa plus you can then pay each year's voluntary contributions at £108 pa.
The sum you need to work out is:- how many years your wife has in credit - you can get a forecast from NI.
Then work out what it would cost you to make the payments and what you would gain.
In our instance, my wife will be 60, three years before I reach 65 so would only receive about £40 per week at that time, based on my contributions. By paying the 'back pay' and spending £108 pa until she's 60, she will get around £70 per week, which means she will more than have recovered our spend, just in the three years until I retire - it must be a good deal.
I suggest you get a forecast from NI and ask them about voluntary contributions.

libra10 · 30 August 2004 at 9:23PM

There's lots of information at
http://www.thepensionservice.gov.uk/approaching_retirement/introduction.asp
and you can print out the necessary form for pension forecasts.
Good luck

NI Contributions for State Pension

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