Excess National Insurance Contributions

angrytaxpayer_2

I am a female aged 58 and to date have paid 42 years' national insurance contribitions which is 3 years more than I need to qualify for the full government pension. I intend to work until 60 when I will then have paid 5 years more than I need to. Does anyone know if I can 'exempt' myself from this extra tax as I am paying nearly 10% more tax than most people? My husband will also have paid 5 years more than he needs to by the time he is 65. There won't be many people in this position but enough I think to try to do something about it.

CIS

If theres a liability to pay, then NI must be paid - you cant exempt yourself.

There are, surprisingly many people who have the full 49years of NI, I used to see quite a few ( I was a a state pension forecast officer)

jamesd

CIS gave the direct answer so I'll add some general background.

First, it's likely that the number of years to qualify for a full state pension will soon be reduced to 30. Second, you should not be able to qualify for a state pension until you're 62-65 and its unjust to the generation after you that you can collect at 60.

The long term future of NI contributions is more of the same, with those paying full term helping those who pay for limited terms to try to reduce poverty after retirement without growing means testing, which is not considered a good idea because it is expected to decrease the incentive for people to make contributions into their own pension plans. And that's necessary to help avoid major pain when the current ratio of 1 retired person for every 3 in work that your generation has enjoyed changes to 1 for every 2 over the next 15 to 25 years as your generation retires and there are fewer people in working age in the following generation.

Even so, it's pretty unjust on those retiring after you and those in your own generation should really have had their state retirement age increased by several years and have paid higher contributions to decrease their subsidy by the following generation.

To put it somewhat differently: your generation has been making lower payments than required to pay for your own generation's pensions and major changes are required to prevent a rebellion by those who will end up subsidising your generation. Not necessarily you specifically, but the generation as a whole.

Worse still, this is actually a fair summary of the conclusions that are driving future government policy.

I'm tempted to try to do something about it by getting your minimum pension age and NI contribution levels increased but it's not realy a politically viable course at this late date. Should have been done ten years ago.

So, sorry to say it but you're getting a very good deal compared to those in the next generation and don't really have a lot to complain about on the pension front.

seven-day-weekend

Er.... was the OP complaining or just asking advice?

I am also one of 'that generation' who can take retirement at 60 and I have just paid what was asked of me over all those years, I haven't broken any rules.

Why should the goalposts suddenly be moved?

The generation after me has at least had 10 years warning of the moving of goalposts.

EdInvestor

What a strange post from jamesd. I'd have thought it's very obvious that women coming up to retirement now have been quite seriously disadvantaged by the rules in the past, that is why something like only 30% of them qualify for the full basic state pension, compared with 87% of men. The position of the younger generation will be immensely imporved by the new 30 year rule - the numbers of women getting the full state pension will rocket to 70% overnight Younger ones will be much better looked after, as will less well off younger people, with the restructuring of the state second pension.

There always appear to be a few losers when things change, like the OP.Another group will be those who retire before 2010 with more than 30 years NI conts, but less than the full amount for the basic pension.

EdInvestor

CIS wrote:

There are, surprisingly many people who have the full 49years of NI.

I wouldn't have thought it was surprising, 40 years ago only a minority would have gone on to O and A levels after school leaving age and even fewer to university - that's a recent change.

jamesd

seven-day-weekend, I read the name "angrytaxpayer", the question about how to avoid paying the NI contributions and "There won't be many people in this position but enough I think to try to do something about it" as an indication that the poster was complaining.

So, I offered some comments on the general pension situation in the UK now and what's coming in the future.

The goalposts shouldn't suddenly be moved, rather they should really have been moved many years ago. They weren't and angrytaxpayer is benefitting from that and should be more happy than unhappy in the context of what's coming for the next generation.

EdInvestor, I agree that many women have been less well treated than many women in the next generation will be treated. angrytaxpayer, with 42 years of NI contributions, doesn't seem to be one of them. More like one of those who has actively worked to get herself into a good position, which is a big part of why I was careful to say the generation rather than the individual - and of course it doesn't apply to all invididuals in any generation.

I agree that younger people - the second generation after angrytaxpayer - should be better placed. I don't think that angrytaxpayer is one who is disadvantaged. It seems clear that those in her age group and retiring in the next 10-15 years should have had to work longer and pay more to qualify for state pensions. That's never popular, of course...

I recommend reading "A New Pension Settlement for the Twenty-First Century", The Second Report of the Pensions Commission. The graphs and comments there should make the situation pretty clear if you haven't seen them before. I found it to be interesting, if rather long-winded, reading.

EdInvestor

And that's necessary to help avoid major pain when the current ratio of 1 retired person for every 3 in work that your generation has enjoyed changes to 1 for every 2 over the next 15 to 25 years as your generation retires and there are fewer people in working age in the following generation.

Let me just point out that this is wrong.It's not the ratio of young to old people that matters, it's the ratio of who's a contributor ( taxpayer ) and who's not ( eg in recepit of benefits).Plenty of retired people pay tax and the numbers are rising. Plenty of people below retirement age don't - they are net beneficiaries from the economy, not net contributors. There are a lot of people these days who are getting tax credits and may be on both sides of the ledger.

There is also likely to be a major change in the next few years due to longevity: more older people will work for longer and more will be investing for growth. The babyboom generation, being large and with comparatively big pensions (compared with their parents), will also be contributing more via their spending to the econoimy - as you know consumption is the major driver.

It won't be too long before the political parties pick up on this, one suspects.

jamesd

EdInvestor, it's accurate for the purpose intended by the Pensions Commission, to illustrate the change in ratio of those retired to those in work (the dependency ratio), due to the demographic shift that's happening. See figure 1 on page 5 of the report, which shows a current dependency ratio of 27% and one in 2035 of about 54%.

Doing something to decrease the percentage who receive benefits is one of the objectives of pension reform.

Part of the problem is increased longevity which hasn't yet been compensated for in increased retirement age or national insurance/pension payments by those now retiring. Pages 81 and 97 have some figures showing this: men retiring in 1970 could expect to live for 13 years, men retiring in 2000 for 18 years, but no change in retirement age to increase the number of working years to pay for the income for the extra retired life. Page 97 is particularly interesting - men in 1950 spending 18% of their adult life in retirement, in 2000, 30.8%. Even more for women, from 26.1% to 36.9% of adult life in retirement. On page 98 there's the suggestion of a ratio of 2:1 for working to retired, suggesting that retirement age should already have increased by 3 years for men, more for women, compared to 1970.

Trying to get closer to the older ratio of working years to retired years is part of why retirement ages are going to increase, but as you can see, they should already have increased. That baby boomer generation is the one about to be retiring and which hasn't contributed enough to pay for the longer retirement they can expect.

EdInvestor

EdInvestor, it's accurate for the purpose intended by the Pensions Commission, to illustrate the change in ratio of those retired to those in work (the dependency ratio), due to the demographic shift that's happening. See figure 1 on page 5 of the report, which shows a current dependency ratio of 27% and one in 2035 of about 54%.

It might be accurate 'for the pruposes of the Pension Commission' ( whatever they were) but it's not a problem we need to bother about. Dependency is not a function of age.A child is a dependant, so is someone who is of working age but receiving benefits.Of the people of working age, nine million are dependant. A retired person who is an investor, consumer and taxpayer is not a dependant.

Look instead at the economic support ratio - and you can see we don't have a serious problem

jamesd

The Pensions Commission is what is producing the reports that are causing the planned changes in UK pensions. Well worth seeing what they are saying. The Times opinion piece by Philip Sadler that you linked to mentions their first report and was published one day after their 411 page second report, the one I'm referring to. Their final report was published on 4 April 2006.

The economic support ratio makes a rather large assumption: that those in work will accept not fully increasing their standard of living as economic output rises. Which is also really what the dependency ratio implies, just said in a different way.

Both are telling the same story: the standard of living of those in the working age population is going to end up harmed because of an increasing proportion of retired people, many of whom are going to be dependent on benefits, even though those who comment here are hopefully not going to be in that group and are hopefully going to be better off than benefit levels.