Pension Reform. Class 3 NIC

Eve_Van_Stevens

My brother (age 55) has been paying voluntary NIC contributions for about 6 or 7 years. Prior to that he had been in full time employment since the age of 17 (ie for 31 years) so he has about 38 years of contributions.

He has recently received a letter from the DWP saying that as he has paid 30 years of NI contributions, he will have paid enough towards his pension if the White Paper becomes law and he might wish to stop paying the Class 3 contributions now. It goes on to say that if the White Paper does not become law this could leave him with a shortfall.

The obvious answer would seem to be to stop paying but save the money to one side just in case the shortfall needs to be made-up. (???)

Any advice would be gratefully received.

Milarky

Eve_Van_Stevens wrote:

My brother has recently received a letter from the DWP saying that as he has paid 30 years of NI contributions, he will have paid enough towards his pension if the White Paper becomes law and he might wish to stop paying the Class 3 contributions now. It goes on to say that if the White Paper does not become law this could leave him with a shortfall.

The obvious answer would seem to be to stop paying but save the money to one side just in case the shortfall needs to be made-up. (???)

That would be so. They would definitley allow him to pay more later - although it might get a bit dearer if the payments are delayed to future years.

I'm struck that they are already sending out these letters about the 30 year-rule (in anticipation of a change in the law that is only at consultation stages.) That is pretty nifty. But they should have been able to say also that if he now 'overpays' he will get his pension and a refund of the future amounts. They aren't in position to know that - which is why it is hedged by them.

Basic answer then is: It should be safe to stop paying now and only a misadventure in the proposed law change (which would have all-party support anyway) would mean he might have to resume payments later

Cook_County

an article in this week's Taxation Magazine states the following: "The Government published a White Paper titled ‘Security in retirement: towards a new pensions system (Cm 6841)’ in May 2006 setting out its proposals on pension reform. The paper includes a proposal to reduce the number of qualifying contribution years needed to qualify for a full basic state pension to 30 years for both men and women reaching state pension age on or after 6 April 2010 (at the moment women need between 39 years and 44 years depending on their date of birth and men 44 years).
A person reaching state pension age before 6 April 2010 will be unaffected by the proposed changes and may wish to make voluntary Class 3 contributions to build up his entitlement to qualify for a full state pension. If the proposals in the White Paper become law, individuals who reach state pension age on or after 6 April 2010 will be affected. HMRC say that they should therefore consider delaying paying Class 3 contributions until it is clear whether the rules will change. If payments are made, it may not be possible to get a refund if it turns out at a future date that they need not have been paid. However, if contributions are delayed, the rate may be slightly higher.
This is not an especially helpful comment. Peter Arrowsmith of NIC Consultancy points out that the rates for Class 3 NI are not increased by very much each year, so it is ‘probably better to delay making Class 3 contributions’ until any changes become enshrined in legislation, even if that means that the individual may end up paying greater amounts. However, as Class 3 covers widows and widowers benefit, anyone with a terminal illness may wish to consider making payments before that."

CIS

The main issue is with people who are cuting it fine with NI after a change to 30 qualifying years - if you retire, in say 2020 and currently have 16yrs, then you have 14yrs to go - do you risk not paying any class 3 you can now and gamble on you making the 14yrs you need, or pay some class 3 and give yourself a bit of leeway ?

rotate

How likely are these changes to take place.
I am very interested as I will be 65 in 2012.
I have around 32 years of contribution and cannot afford to make my contribution record up to 44 years.
Thanks

CIS

So far a consultation paper has been issued and a minister aparently confirmed they would push ahead with the plans, but as yet no firm plans have been set down in front of parliament.

Personnaly, I think the changes will be watered down and phased in rather than an overnight change as is suggested.

I would expect that sometime this tax year further info should be issued.