Confused on topping up NICs!

darkvader

OH was made redundant last week and we have been sorting finances with the redundancy package secured to see how best to make use of the money. While I have been reading about Basic and Second State Pensions and how to top up any missing NICs, I am totally confused

1. The literature says HMRC will contact me/OH if we dont pay enough for a year. What is a year's worth of NICs? Do we have to pay for 12 months or is it based on our earnings thus getting us over the threshold if we work for 8 of 12 months? So does £40k a year pay more NICs than a £20k salary implying former only has to work 6 months a year to make that year qualify towards pension?

2. OH is 30 and has worked only 2 years till date of which 1 year was split across 2006/07 and 2007/08. She has never received a letter to make up her NICs for those years so can I assumed she paid the required minimum. Her salart was about £18k

3. I am 32 and have paid NICs for 6 years. Does this mean I have pay for another 24 years to meet current requirements for full basic pension?

4. Finally, I know Second State Pension is complicated but can someone give an example how much a person earning £30k or £40k or £50k at retirement may get today? I am sure the more one earns the higher their SSP

To make sense of this all, is it best we call HMRC and ask if we have a shortfall and how much we should pay to make it up? We have some extra cash but really not sure if it's worth topping up for something thats more than 30 years in the future!!!

Thank you
DV

jamesd

The number of qualifying years needed for the maximum Basic State Pension is currently 30. Likely state retirement age is at least 68. Those not working between ages 16 and 18 inclusive will have received three years of Juvenile Credits, a system that has now ended for anyone not aged 16 by 6 April 2010.

1. There's an earnings threshold. You can make partial payment of whatever the difference is, you don't have to pay the whole year. I don't know the detailed rules.

2. OH has 38 more possible working years to accumulate 25-27 years of contributions. 27 if the split of one year meant there wasn't enough paid in the years either side of the split.

3. You have 36 more working years to accumulate 21 years.

4. A person who is over the minimum earnings threshold and making up to £14,700 accumulates a flat £1.70 per week of additional state pension for each year worked. Between £14,700 and 40,040 you get the £1.70 plus an amount that depends on income. The calculation for this is (income-14701) x10%/44 a year with a maximum extra of 25340 * .1 / 44 = 57.5909 per year = £1.1075 per week. Combining the two the maximum accrual is £1.70 + £1.10 = £2.80 a week for each year worked. You can't buy any of this income-related amount.

Each of you should ask for a State Pension Statement. This will tell you your current situations and what it will cost to make up any partial years.

It's unlikely to be worth paying for more whole years in your situations because you have so many years to go. It might be worth paying to top up partial years if the cost is low enough or there's a reason to believe you might stop working and not be entitled to NI credits for some reason.

darkvader

Had to read through a few times for me to understand it but I think I get it now.

1. If we both are planning to retire around mid 50s then I have 23 years to pay off 21 years contributions and OH has only 25 years left which means a max 3 year shortfall if she works every year which isnt a big loss

2. Clearly from above, I'd rather not bother about topping up just yet as A- I am making alternate savings arrangements and B - hell, its way too early for the amount we get. Worse case we get 25/30th of the total pension which is manageable

3. Will get a State Pension Statement for both of us very soon

Cheers
DV

jamesd

That seems like a good plan, though if a top up happens to be very cheap for one of her years it might be worth doing.