Early-retirement wannabe

LeadFarmer

This is a post he made elsewhere about it, and before anyone suggests it, this turned out to be unrelated to any periods of him being contracted out...

This applies to anyone, like me, who finishes work prior to their STATE  pension age.

 Purely by chance I looked at what my predicted state pension will be as I will reach state pension age next May (65yrs 10 months) I retired from the Police in 2015 and receive a pension from them. I have 46 qualifying years of payments, you need a minimum of 35 so I thought I was fine. WRONG! My predicted pension is down a fair bit, the reason being.......

In 2016 the pension rules all changed. After that date if you still have ANY form of income you have to make NI contributions up until your state pension age

If you are working then they will be taken along with your PAYE tax. HOWEVER if you are just getting a pension then NI contributions are NOT taken automatically from your pension!! . It’s up to you to take positive steps to pay them. If you don’t make these payments your state pension WILL be reduced. For me it’s going to about £20 a week less! That’s a lot of money over a year.

 You CAN make up any shortfall in contributions up until the point you put in a CLAIM for you state pension (note it’s not the date you get it, it’s the date you make a claim for it!): Once you have submitted a claim for your pension you cannot make up any shortfall. Any previous years shortfall can ONLY be made as lump sums you cannot spread it out over a period of time.

So if you retire and draw an occupational pension (or will do in the future) you need to ensure you make NI payments from your pension UNLESS you get other employment in which case it’s taken automatically like PAYE tax.

I reckon it was a deliberate policy not to publicise these changes, think of the money the Govt will save! I wonder how many other people will get caught out by this. I am fortunate in being able to (very reluctantly) pay the five year shortfall but it hurts at around £780 for every year.,

 So if you have retired early, or plan on doing so, and are/will be in receipt of an occupational pension and haven’t/don’t take positive steps to make NI payments your state pension WILL BE REDUCED  unless you make them. This reduction is in addition to any as a result of you being “Contracted out” 

I hope this information helps just one person avoid the (hidden) trap that I, as someone who keeps a reasonably careful eye on the financial news, missed! 

If you are nw retired and drawing an occupational pension be sure to go onto the Govt website and get a pension prediction. You can then see if you have any “missing years” payments. No one will write and tell you if you have missed payments.

The_Doc

...and that £780 or so is good value for money, so people should definitely fo it. IIRC, if you live longer that about 4 years post taking state pension, then you will be in the money by making the extra contributions.

drummersdale

Anonymous101 said:

drummersdale said:

So is that a combined VR payment of c£170k and then you get your pension at 58 as well?  I'm not suggesting redundancy is ever welcome but that sounds like a bit of fortunate combination of events - obviously your age and proximity to pension helps - I am 57 and have almost 38 years in Classic so if my Organisation offered VR I suspect I would bite their hands off!

It may be seen as a little underhand possibly but I know of a few people that have been in very good positions such as you and have "engineered" a redundancy. There are times when it can cut your working life down by a good few years so I personally wouldn't ever rule it out for myself at some point.
It wouldn't necessarily have to be militant, it could be as simple as a conversation with your manager about VR being an option.

Oh no I wouldn't contrive a position to obtain a redundancy - I am conscious there are many likely to face redundancies in coming months so consider myself fortunate.  I think what I was saying in a clunky way that it's not often the stars align where you are in a fortunate position where you are approaching retirement anyway but then suddenly get offered the opportunity for what is effectively a second lump sum within touching distance of your pension as well.

AlanP_2

LeadFarmer said:

This is a post he made elsewhere about it, and before anyone suggests it, this turned out to be unrelated to any periods of him being contracted out...

This applies to anyone, like me, who finishes work prior to their STATE  pension age.

 Purely by chance I looked at what my predicted state pension will be as I will reach state pension age next May (65yrs 10 months) I retired from the Police in 2015 and receive a pension from them. I have 46 qualifying years of payments, you need a minimum of 35 so I thought I was fine. WRONG! My predicted pension is down a fair bit, the reason being.......

In 2016 the pension rules all changed. After that date if you still have ANY form of income you have to make NI contributions up until your state pension age

If you are working then they will be taken along with your PAYE tax. HOWEVER if you are just getting a pension then NI contributions are NOT taken automatically from your pension!! . It’s up to you to take positive steps to pay them. If you don’t make these payments your state pension WILL be reduced. For me it’s going to about £20 a week less! That’s a lot of money over a year.

 You CAN make up any shortfall in contributions up until the point you put in a CLAIM for you state pension (note it’s not the date you get it, it’s the date you make a claim for it!): Once you have submitted a claim for your pension you cannot make up any shortfall. Any previous years shortfall can ONLY be made as lump sums you cannot spread it out over a period of time.

So if you retire and draw an occupational pension (or will do in the future) you need to ensure you make NI payments from your pension UNLESS you get other employment in which case it’s taken automatically like PAYE tax.

I reckon it was a deliberate policy not to publicise these changes, think of the money the Govt will save! I wonder how many other people will get caught out by this. I am fortunate in being able to (very reluctantly) pay the five year shortfall but it hurts at around £780 for every year.,

 So if you have retired early, or plan on doing so, and are/will be in receipt of an occupational pension and haven’t/don’t take positive steps to make NI payments your state pension WILL BE REDUCED  unless you make them. This reduction is in addition to any as a result of you being “Contracted out” 

I hope this information helps just one person avoid the (hidden) trap that I, as someone who keeps a reasonably careful eye on the financial news, missed! 

If you are nw retired and drawing an occupational pension be sure to go onto the Govt website and get a pension prediction. You can then see if you have any “missing years” payments. No one will write and tell you if you have missed payments.

That would be pistonheads then I think.

It's been explained to death on there and he still doesn't get it, no point rehashing it all on here. Suffivce to say that everybody's SP situation is unique and the .gov website needs to be checked to see your situation.

The government aren't being underhand, aren't robbing anybody and are certainly not deliberately paying anyone less SP than they are entitled to.

Not paying voluntary contributions DOES NOT reduce the pension you are entitled to, it stops your entitlement increasing.

Seems logical and simple to me - if you want SP creditr for a few extra years pay for them, if you don't want to nobody else is worried and as a taxpayer I say "Thanks".

jimi_man

LeadFarmer said:

This is a post he made elsewhere about it, and before anyone suggests it, this turned out to be unrelated to any periods of him being contracted out...

This applies to anyone, like me, who finishes work prior to their STATE  pension age.

 Purely by chance I looked at what my predicted state pension will be as I will reach state pension age next May (65yrs 10 months) I retired from the Police in 2015 and receive a pension from them. I have 46 qualifying years of payments, you need a minimum of 35 so I thought I was fine. WRONG! My predicted pension is down a fair bit, the reason being.......

In 2016 the pension rules all changed. After that date if you still have ANY form of income you have to make NI contributions up until your state pension age

If you are working then they will be taken along with your PAYE tax. HOWEVER if you are just getting a pension then NI contributions are NOT taken automatically from your pension!! . It’s up to you to take positive steps to pay them. If you don’t make these payments your state pension WILL be reduced. For me it’s going to about £20 a week less! That’s a lot of money over a year.

 You CAN make up any shortfall in contributions up until the point you put in a CLAIM for you state pension (note it’s not the date you get it, it’s the date you make a claim for it!): Once you have submitted a claim for your pension you cannot make up any shortfall. Any previous years shortfall can ONLY be made as lump sums you cannot spread it out over a period of time.

So if you retire and draw an occupational pension (or will do in the future) you need to ensure you make NI payments from your pension UNLESS you get other employment in which case it’s taken automatically like PAYE tax.

I reckon it was a deliberate policy not to publicise these changes, think of the money the Govt will save! I wonder how many other people will get caught out by this. I am fortunate in being able to (very reluctantly) pay the five year shortfall but it hurts at around £780 for every year.,

 So if you have retired early, or plan on doing so, and are/will be in receipt of an occupational pension and haven’t/don’t take positive steps to make NI payments your state pension WILL BE REDUCED  unless you make them. This reduction is in addition to any as a result of you being “Contracted out” 

I hope this information helps just one person avoid the (hidden) trap that I, as someone who keeps a reasonably careful eye on the financial news, missed! 

If you are nw retired and drawing an occupational pension be sure to go onto the Govt website and get a pension prediction. You can then see if you have any “missing years” payments. No one will write and tell you if you have missed payments.

Hi
Some of what you have said isn't quite correct, though the general thrust is there. The key to it, as you have described, is to get a state pension check. Some people may be ok, some won't be. The 35 years catches a lot of people out, since it only applies to people starting now - something that no-one seems to be able to understand, though the rules were a little confusing.
In actual fact, people who have been contracted out for years, will generally be better off as they now have the ability to build their state pension up to £175, as opposed to the much lower amount they would have been entitled to pre 2016, and they would have paid less in NI contribs as well. 
Also, £780 will give you an extra £5 a week, or £260 a year, so in three years you'll have recouped your money. A pretty good deal.
The bit I would argue with is the publicity around it. I got letters about it, it was talked about at work extensively (I was also in the Police) and there was a huge amount of media attention on it, so it was pretty hard to miss. It was also covered extensively on this forum, though of course if you don't read this......!
It was however rather complicated, maybe it had to be, in order to be fair. 

Notepad_Phil

LeadFarmer said:

This is a post he made elsewhere about it, and before anyone suggests it, this turned out to be unrelated to any periods of him being contracted out...

Why do you think this has nothing to do with periods of being contracted out, it seems to me that it is exactly that?

Your friend had long periods of being contracted out and so they needed additional years of NI to make up for that. It is true that if they had been working then those years could have been made up by the normal paying of NI, but as they were not working then they needed to pay voluntary NI if that was what they wanted to do. But it is wrong to say that if you retire before state pension age then everybody has to continue to pay voluntary NI and if you don't then you will get a reduced state pension, which is what they appear to be saying - only some people will need to do that.

michaels

The_Doc said:

or if you have a bit of time to kill, see https://www.gov.uk/new-state-pension/how-its-calculated
In simplistic terms, the maximum number of NI years obtained prior to 2016 is 30 and 35 are needed to get the maximum of the "New State Pension". So, yes, people need to keep making voluntary contributions even if they are not working/retired to get to 35.

Nope, in 2016 and in my 40s I already had the full state pension entitlement which means it doesn't matter how much more NI I pay in the next 20 years to retirement I won't get any more state pension - fair or what?!

Turns out that contracting out was the way to go but who knew there would be an effectively retrospective rule change meaning those who contracted out kept their gains and those who didn't had their SERPS / S2P contributions confiscated.

The_Doc

michaels said:

The_Doc said:

or if you have a bit of time to kill, see https://www.gov.uk/new-state-pension/how-its-calculated
In simplistic terms, the maximum number of NI years obtained prior to 2016 is 30 and 35 are needed to get the maximum of the "New State Pension". So, yes, people need to keep making voluntary contributions even if they are not working/retired to get to 35.

Nope, in 2016 and in my 40s I already had the full state pension entitlement which means it doesn't matter how much more NI I pay in the next 20 years to retirement I won't get any more state pension - fair or what?!

Turns out that contracting out was the way to go but who knew there would be an effectively retrospective rule change meaning those who contracted out kept their gains and those who didn't had their SERPS / S2P contributions confiscated.

My caveat was "in simplistic terms". There will always be exceptions.

bristrew

Anonymous101 said:

drummersdale said:

So is that a combined VR payment of c£170k and then you get your pension at 58 as well?  I'm not suggesting redundancy is ever welcome but that sounds like a bit of fortunate combination of events - obviously your age and proximity to pension helps - I am 57 and have almost 38 years in Classic so if my Organisation offered VR I suspect I would bite their hands off!

It may be seen as a little underhand possibly but I know of a few people that have been in very good positions such as you and have "engineered" a redundancy. There are times when it can cut your working life down by a good few years so I personally wouldn't ever rule it out for myself at some point.
It wouldn't necessarily have to be militant, it could be as simple as a conversation with your manager about VR being an option.

To be clear, it is a VR payment of around £170k and then the ability to take an actuarially reduced pension at 58 of around £45k with a tax free lump sum of £116k for the two of us. 

Or alternatively to use most of the VR to buy out the actuarial reduction and get around £53k with an increased lump sum of £121k. And the widows/widowers tax free refund of £25k.

Yes timing is good, but completely out of my control. And around 2,000 colleagues in the same government department are also getting their Voluntary Redundancy offers today.

Linton

michaels said:

The_Doc said:

or if you have a bit of time to kill, see https://www.gov.uk/new-state-pension/how-its-calculated
In simplistic terms, the maximum number of NI years obtained prior to 2016 is 30 and 35 are needed to get the maximum of the "New State Pension". So, yes, people need to keep making voluntary contributions even if they are not working/retired to get to 35.

Nope, in 2016 and in my 40s I already had the full state pension entitlement which means it doesn't matter how much more NI I pay in the next 20 years to retirement I won't get any more state pension - fair or what?!

Turns out that contracting out was the way to go but who knew there would be an effectively retrospective rule change meaning those who contracted out kept their gains and those who didn't had their SERPS / S2P contributions confiscated.

Not true. In 2016 you were assigned the higher of the pensions you would have accrued up to that date under the new and old rules.   So if you had high SERPs taking you above the new pension level you kept it. No-one ended up with a lower pension than that they had already paid for.