NI Contributions for State Pension

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
18 replies 2.1K views
MTCMTC Forumite
6 Posts
My wife is currently unemployed (through choice) and does not claim any benefits (JSA etc).

I am concerned though, that at the moment, she is not paying any NI contributions.

Will this mean that she is not entitled to a basic state pension on her retirement, since she won't have any NI contribution history? Or will my National Insurance contributions over the next 40 years be enough to cover both of us? I am 26, she is 24.

Should my wife register as unemployed, but not apply for JSA (since she is not looking for a job) so that she can have her NI contributions paid by the benefits office?

Or can I make voluntary NI payments to the Inland Revenue to top up my wifes NI contributions for each year?

Or should I just pay into a personal/stakeholder pension scheme for her?

Or should I just invest money for her each year so that she has a retirement income, regardless of what happens to the State pension scheme?

I'd be grateful for your views on this - the Inland Revenue and DWP websites don't seem to elaborate on this situation. i.e - HELP! :-/
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Replies

  • isasmurfisasmurf Forumite
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    Have you looked at The Pension Service's Pensions for Women leaflet?

    Under the current rules (which will undoubtly change by the time you retire), your wife will be entitled to a basic state pension based on your NI contributions.  This will be up to 60% of the full basic state pension if you have the full 44 qualifying years, or less if you do not have the full amount of qualifying years.

    On top of that you and your wife can apply for Pension Credit which, today, guarantees a weekly income of at least £160.45 for a couple.

    Although as I say Pension credit will certainly have changed by the time you and your wife reach retirement age, and probably the state pension would have too.

    If you can afford to save a little something for your wife then it may be beneficial to do so, but I wouldn't if it stretches your finances now.  
  • dunstonhdunstonh Forumite
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    I doubt pension credit will exist by the time you get to retirement. The country can barely afford it now.

    Although with everyone getting fat and living unheathly lifestyles and likely to die earlier, you never know... ;D
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • MTCMTC Forumite
    6 Posts
    Thanks for the link to the leaflet - this is what I was looking for.

    At the moment, I am using both of our ISA allowances to save but that is reducing after April 2005 to 1k per year. Need to find somewhere else to save after that. I'm also saving £200 a month with ING direct, so I might put it in there.

    I'm hoping to build enough capital to give a decent income for us both in our retirement - I'm definitely not relying on the state pension, anything I get from that is a bonus. I have a final salary company pension that I'm told is one of the best around, so I'm also banking on that.

    I just wondered if I could do anything to guarantee her a full state pension, but I guess 60% of whatever it is at that time is enough. I'd rather save any voluntary NI contributions to top it up with ING, rather than give it to the government. I also don't think the state pension will be worth much when I'm due to receive it (probably at 75 :)

    I'd rather live carefully within our means during our younger years, so we can enjoy our retirement, and possibly retire early at 50 if I save hard enough.

    Thanks for the help - much appreciated. This is a great site!
  • dunstonhdunstonh Forumite
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    Dont forget to pay something into your wifes pension. In retirement she still retains a personal allowance. Not making use of it and having all pension planning in your name costs you £1000 a year in tax.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • MTCMTC Forumite
    6 Posts
    Hi DD,
    Dont forget to pay something into your wifes pension. In retirement she still retains a personal allowance. Not making use of it and having all pension planning in your name costs you £1000 a year in tax.

    Can you explain this situation a bit more fully to me? Or is there another thread on the bulletin board that I can read?

    Does my wife have a tax free allowance that I can use to put some of my taxable earnings into a pension plan for her? i.e a stake holder pension perhaps? Is this the kind of thing you mean?

    I'm not sure what you mean by "costs me £1000 per year in tax" ? This sounds like exactly the kind of thing I want to avoid in our situation.

    Many thanks for your advice on this - mortgages and savings I can just about work out myself - pensions, tax and NI are still beyond me! ;D
  • dunstonhdunstonh Forumite
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    You both have a personal allowance where you pay no tax.  This applies now and in retirement.  

    Assuming todays figures in everything so it keeps things simple:

    Lets say you have pension planning that is all in your name and none in your wifes, your retirement income is £18,000 and you are 65.

    You will pay the following tax:
    £6830 at 00% = 0
    £2020 at 10% = £202
    £9150 at 22% = £2013

    Therefore your tax liability is £2215

    Now lets say you planned differently and split your pension plans equally between you and your wife and you both have £9000 retirement income each.

    You will pay the following tax:
    £6830 at 00% = 0
    £2020 at 10% = £202
    £  150 at 22% = £33

    That applies to both of you making your tax liability £470.  Therefore you save £1745 per year in tax at retirement (in todays terms).

    Yet, it hasnt cost you anything more.  All you have done is split the contributions between you.

    So, thats how to save £1745 a year without costing you anything.

    Assuming your wife doesnt earn now, she can pay upto £3600 per year into a pension. If she earns, she could pay more than that.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • OK, I have questions on this.

    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?

    Also, I had not thought about the fact that a pension in her name will generate tax-free income (up to the personal allowance threshold). So all pension provision is in my name right now.

    However, I am a higher rate taxpayer, so a pension in her name only attracts basic-rate tax relief, but a pension in my name attracts higher rate relief. Has anyone done the numbers? Is it better to get the higher rate relief now or get basic rate relief now and a tax free allowance later?
    I have five stars! This doesn't mean that I know anything about any of the things I post. I could be a raving lunatic, or a brilliant genius, or just some guy on the internet. In fact, I could be all three at the same time.

    If anything I say makes sense, then do it. If not, don't. Don't blame me or my stars if you do something stupid because I suggested it. I'm responsible for my own stupidity only. You are responsible for yours.

    Why, I don't even have five stars anymore! Aren't you glad you aren't responsible for my stupidity?
  • PalPal Forumite
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    I haven't got my head around the numbers yet, but it would appear to make sense to contribute up to £3600 a year (gross) for 10 years or so (depending on how your investments do) into a pension plan in your wives names and get the basic rate tax relief. They can then get the tax free cash and pension tax free (or at least at a lower tax rate than you can).

    No idea on your state pension question. Not my thing.

    Finally, I think you meant to write:
    My wife has not worked, and is unlikely to do so (she will be near 80 by the time our youngest leaves home). She will have over 25 years of HRP from child benefit, however.
    ;)
  • dunstonhdunstonh Forumite
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    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 am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Joe_BloggsJoe_Bloggs Forumite
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    @Digging Out
    A political correctness tip. Never say "your wife has not worked". You could say "she contributes to the household in an unpaid valet/childminder/secretarial role". Feel free to come up with a P.C. phrase as you see fit.

    The rumour is that you will have to be 75 in the future to get a state pension. It sounds like many will have to to do without by dropping dead first.
    J_B.
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