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  • FIRST POST
    • 50Twuncle
    • By 50Twuncle 15th Oct 16, 11:32 AM
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    50Twuncle
    Contracted out pension
    • #1
    • 15th Oct 16, 11:32 AM
    Contracted out pension 15th Oct 16 at 11:32 AM
    I am wondering whether it is possible to make extra contributions to cover the difference between my "Contracted out" state pension and the pension that I would have received, had I not been "contracted out" ?
    or do the extra contributions only allow recipients to build up extra years (ie I currently have 29 years + potentially an extra 3 years (according to state pension forecast))
    What are the current number of years NI contributions required to receive a max state pension ?
Page 1
    • hugheskevi
    • By hugheskevi 15th Oct 16, 11:42 AM
    • 1,835 Posts
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    hugheskevi
    • #2
    • 15th Oct 16, 11:42 AM
    • #2
    • 15th Oct 16, 11:42 AM
    I am wondering whether it is possible to make extra contributions to cover the difference between my "Contracted out" state pension and the pension that I would have received, had I not been "contracted out" ?
    All you can do is purchase extra qualifying years if you have a gap in your recent National Insurance contribution history. More details at this link.

    What are the current number of years NI contributions required to receive a max state pension ?
    35 for those with contracted-out deductions. For those with contracted-out deductions the figure will vary from person to person depending on their contracted-out history.
    • 50Twuncle
    • By 50Twuncle 15th Oct 16, 11:44 AM
    • 6,711 Posts
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    50Twuncle
    • #3
    • 15th Oct 16, 11:44 AM
    • #3
    • 15th Oct 16, 11:44 AM
    All you can do is purchase extra qualifying years if you have a gap in your recent National Insurance contribution history. More details at this link.



    35 for those with contracted-out deductions. For those with contracted-out deductions the figure will vary from person to person depending on their contracted-out history.
    Originally posted by hugheskevi
    So with my 29 years (plus an added 3 years) - how much will I lose out on ?
    Is it worth me making extra contributions ?
    I am currently earning under the £112 per week limit - but am also receiving an ill heath pension of around £10k
    Last edited by 50Twuncle; 15-10-2016 at 11:48 AM.
    • hugheskevi
    • By hugheskevi 15th Oct 16, 12:00 PM
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    hugheskevi
    • #4
    • 15th Oct 16, 12:00 PM
    • #4
    • 15th Oct 16, 12:00 PM
    So with my 29 years (plus an added 3 years) - how much will I lose out on ?
    It depends on your contracted-out deduction. The amount of State Pension to which you are entitled to currently will be shown on your State Pension forecast.

    Is it worth me making extra contributions ?
    It depends on whether your ill-health will reduce life expectancy, whether you expect to be in receipt of means-tested benefits and so forth.

    The cost of class 3 contributions for those close to retirement without full entitlement is a good deal in general though.
    • 50Twuncle
    • By 50Twuncle 15th Oct 16, 12:11 PM
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    50Twuncle
    • #5
    • 15th Oct 16, 12:11 PM
    • #5
    • 15th Oct 16, 12:11 PM
    It depends on your contracted-out deduction. The amount of State Pension to which you are entitled to currently will be shown on your State Pension forecast.



    It depends on whether your ill-health will reduce life expectancy, whether you expect to be in receipt of means-tested benefits and so forth.

    The cost of class 3 contributions for those close to retirement without full entitlement is a good deal in general though.
    Originally posted by hugheskevi
    So - if they think that I will die before claiming too much state pension - I will pay less ?
    Who decides this ?
    I will NOT be on any means tested benefits
    I am now 53 years old - will it make any difference when I make up the missing years ?
    Does the state pension forcast include details of how and at what cost - I make the added payments ?
    Last edited by 50Twuncle; 15-10-2016 at 12:14 PM.
    • atush
    • By atush 15th Oct 16, 12:33 PM
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    atush
    • #6
    • 15th Oct 16, 12:33 PM
    • #6
    • 15th Oct 16, 12:33 PM
    If you are working, but not making enough to pay nics- try and get a feew more hours to put you over.

    Otherwise, pay voluntary nics until you reach 35 full years.
    • hugheskevi
    • By hugheskevi 15th Oct 16, 12:49 PM
    • 1,835 Posts
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    hugheskevi
    • #7
    • 15th Oct 16, 12:49 PM
    • #7
    • 15th Oct 16, 12:49 PM
    So - if they think that I will die before claiming too much state pension - I will pay less ?
    No, the cost is the same regardless. But if you die before State Pension age or shortly afterward you will get no value from the contributions. This may be particularly relevant in your case as you are in receipt of an ill-health pension at age 53.

    I am now 53 years old - will it make any difference when I make up the missing years ?
    Not really, but the cost is fixed regardless of age so generally it would be better to pay for them later in life (but the cost does increase each year).

    But if you currently have 29 qualifying years you have another 14 years to build up qualifying years, so need to work out whether you will be likely to accrue the full single-tier amount without purchasing any additional years.

    Does the state pension forcast include details of how and at what cost - I make the added payments ?
    No idea, but all the details about additional years are at this page - https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions
    • 50Twuncle
    • By 50Twuncle 15th Oct 16, 1:17 PM
    • 6,711 Posts
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    50Twuncle
    • #8
    • 15th Oct 16, 1:17 PM
    • #8
    • 15th Oct 16, 1:17 PM
    But if you currently have 29 qualifying years you have another 14 years to build up qualifying years, so need to work out whether you will be likely to accrue the full single-tier amount without purchasing any additional years.
    Originally posted by hugheskevi
    Didn't you used to need 35 years for max state pension ?
    has it really increased to 43 years now ?
    http://www.thisismoney.co.uk/money/pensions/article-2634215/Why-millions-WONT-155-new-state-pension-theyre-expecting.html does say 35 years !!
    Last edited by 50Twuncle; 15-10-2016 at 1:22 PM.
    • Silvertabby
    • By Silvertabby 15th Oct 16, 1:41 PM
    • 381 Posts
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    Silvertabby
    • #9
    • 15th Oct 16, 1:41 PM
    • #9
    • 15th Oct 16, 1:41 PM
    “ But if you currently have 29 qualifying years you have another 14 years to build up qualifying years, so need to work out whether you will be likely to accrue the full single-tier amount without purchasing any additional years.
    Originally posted by hugheskevi
    Didn't you used to need 35 years for max state pension ?
    has it really increased to 43 years now ?
    It's 35 years of FULL National Insurance contributions. Any years in which you paid reduced NI contributions (because you were contracted out) don't count.

    The employee NI rebate of 1.4% doesn't sound much, but it equates to £25 per month for someone on a salary of £25K. Plus, contracting out meant that your employer also paid reduced employer National Insurance. In their case the rebate was a much higher 3.4%, which almost certainly helped to fund your occupational contracted out pension.

    It remains to be seen how the ending of contracting out will affect occupational pension schemes - they'll have to plug that 3.4% gap somehow.
    Last edited by Silvertabby; 15-10-2016 at 1:50 PM. Reason: typo
    • 50Twuncle
    • By 50Twuncle 15th Oct 16, 1:58 PM
    • 6,711 Posts
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    50Twuncle
    It's 35 years of FULL National Insurance contributions. Any years in which you paid reduced NI contributions (because you were contracted out) don't count.

    The employee NI rebate of 1.4% doesn't sound much, but it equates to £25 per month for someone on a salary of £25K. Plus, contracting out meant that your employer also paid reduced employer National Insurance. In their case the rebate was a much higher 3.4%, which almost certainly helped to fund your occupational contracted out pension.

    It remains to be seen how the ending of contracting out will affect occupational pension schemes - they'll have to plug that 3.4% gap somehow.
    Originally posted by Silvertabby
    I am guessing thar I paid reduced NI all of my 29 years (I was a civil servant)
    • xylophone
    • By xylophone 15th Oct 16, 2:16 PM
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    xylophone
    I am guessing thar I paid reduced NI all of my 29 years (I was a civil servant)
    http://forums.moneysavingexpert.com/showthread.php?t=5439410&page=10

    See post 187 - have you obtained a new state pension forecast?
    • 50Twuncle
    • By 50Twuncle 15th Oct 16, 3:33 PM
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    50Twuncle
    http://forums.moneysavingexpert.com/showthread.php?t=5439410&page=10

    See post 187 - have you obtained a new state pension forecast?
    Originally posted by xylophone
    No - not fot a few years
    • molerat
    • By molerat 15th Oct 16, 4:19 PM
    • 15,054 Posts
    • 9,397 Thanks
    molerat
    No - not fot a few years
    Originally posted by 50Twuncle
    That is what you need to do straight away then, easy to do on line. Without more information all the comments here are speculation, too many factors are involved to give accurate help. Pre 2016 "years" become a bit irrelevant if you had contracted out service, it is the £s that count at April 2016.
    Last edited by molerat; 15-10-2016 at 4:21 PM.
    www.helpforheroes.org.uk/donations.html
    • colsten
    • By colsten 15th Oct 16, 4:32 PM
    • 8,147 Posts
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    colsten
    OP, this is a super guide. Work through the flowchart that applies to you. http://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf

    Using gov.ukVerify, you can get your state pension forecast this afternoon
    https://www.tax.service.gov.uk/check-your-state-pension.
  • jamesd
    Don't just do as some have written and buy enough past years to get you to 35 years. The money could well get you no increase at all.

    The reason for this is the foundation amount calculation. This calculates your entitlement as of 6 April 2016 using both old rules and new rules and uses the highest one. For a person who has been contracted out a lot that will normally mean the old rules calculation. Which tops out at 30 year for the basic state pension portion that buying years can add to. And you already have 30 years.

    From 6 April 2016 each new year of paying in or buying years with dates of 2016-17 and later (but not earlier years!) will add 1/35th of the flat rate until the flat rate cap level is reached.

    The 2015-16 tax year will be included in calculations around November or December this year. So get a statement after that is included and you'll be able to work out how many 2016-17 and later years you'll need to get to the flat rate cap.

    Overall you're in a great position because you are able to get both the non-state pension that your contracting out helped to pay for and the maximum possible flat rate pension, while someone who didn't contract out couldn't.
    Last edited by jamesd; 15-10-2016 at 5:10 PM.
    • 50Twuncle
    • By 50Twuncle 15th Oct 16, 5:16 PM
    • 6,711 Posts
    • 1,485 Thanks
    50Twuncle
    If you are working, but not making enough to pay nics- try and get a feew more hours to put you over.

    Otherwise, pay voluntary nics until you reach 35 full years.
    Originally posted by atush
    Easier said than done
    They won't increase my hours
    • bigfreddiel
    • By bigfreddiel 15th Oct 16, 8:04 PM
    • 4,071 Posts
    • 1,866 Thanks
    bigfreddiel
    I am wondering whether it is possible to make extra contributions to cover the difference between my "Contracted out" state pension and the pension that I would have received, had I not been "contracted out" ?
    Originally posted by 50Twuncle
    The 'difference' between a contracted out and contracted in state pension is your occupational pension.

    There would be nothing to gain by 'buying' more state pension.

    You may as well just buy more 'occupational' pension, or just not bother, it's up to you.

    You may want to see an IFA, who will know better than us on this board.

    Good luck fj
  • jamesd
    Easier said than done
    They won't increase my hours
    Originally posted by 50Twuncle
    What will normally happen is that you will get a letter from DWP saying you haven't qualified this year. You can then buy the year at a relatively cheap price. If you're told it's been partly paid for that's the best deal and just buy then.

    If you'd have to pay full price you can instead think about what you might do in the future about work. If you think you might end up in a job where you would get NI contributions, do nothing now and let that job take care of getting you qualifying years. In this case, just start to buy when you can't afford to miss any years and still get to the full flat rate level.

    Getting to the full flat rate matters, but you appear to have a fair bit of time for things to change before you are forced to buy 2016 and later years to get to the maximum.
    • Deneb
    • By Deneb 16th Oct 16, 12:20 PM
    • 190 Posts
    • 141 Thanks
    Deneb
    The 'difference' between a contracted out and contracted in state pension is your occupational pension.

    There would be nothing to gain by 'buying' more state pension.
    Originally posted by bigfreddiel
    I have two contracted out occupational pensions. My current state pension forecast is just over £120 per week.

    I intend to retire early next year. If I purchase another 6 years of Class 3 NICs my SP is forecast to be just over £147 per week at current rates when I reach 66.

    How is that "nothing to gain"?
  • jamesd
    Probably nothing for 50Twuncle to gain by buying years from 2015-16 and earlier because 30 years of the earlier ones are already present and more won't increase the foundation amount calculation. But gain from buying 2016-17 and later.

    In the Deneb case buying 2016-17 and later years also looks like a good move. Maybe earlier years if available and if 30 years from 2015-16 and earlier aren't present.

    This post is only for those who had a lot of time contracted out, where we can be confident that the old rules calculation with 30 years for maximum basic state pension is being used for the foundation amount.
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