Voluntary class 3 contributions - relaxed timescales under 2016 Flat Rate Pension

SnowMan

HMRC have now added some details on the relaxed timescales for paying class 3 contributions for 2006/2007 to 2015/2016 tax years under the proposed Flat Rate Pension in 2016. See the HMRC website here where it says

Extended time limits for the tax years 2006-07 to 2015-16

If you are affected by the proposed changes to simplify future State Pension you have more time to pay voluntary class 2 or class 3 national insurance contributions for the years from 2006-07 to 2015-16. The extended time limits apply if:

• you reach State Pension age on or after 6 April 2016
• and you make payment by 5 April 2023

The amount you will pay:

• if you make payment by 5 April 2019 you will pay the contributions at the rate that applied in 2012/13 tax year for the tax years 2006/07 to 2010/11
• for the remaining years up to and including 2015/16 higher rate provisions will not apply until 5 April 2019
• if you make payment after the 5 April 2019 the rates may have increased

JohnB47

Thanks.

I've had a look but can't see any info on the actual cost of buying additional credits for the tax years 2006/07 to 2010/11.

Is it in this document or elsewhere?

Cheers.

SnowMan

JohnB47 wrote: »

Thanks.

I've had a look but can't see any info on the actual cost of buying additional credits for the tax years 2006/07 to 2010/11.

Is it in this document or elsewhere?

Cheers.

I would read the HMRC info as saying (it is not 100% clear so would be interested if others interpret it differently) that the class 3 rates, for those reaching SPA on or after 6th April 2016, if paid before 6th April 2019, to buy credits for each tax year are

2006/2007: 13.25pw (£689 for 52 weeks)
2007/2008: 13.25pw (£689)
2008/2009: 13.25pw (£689)
2009/2010: 13.25pw (£689)
2010/2011: 12.05pw (£626.60)
2011/2012: 12.60pw (£655.20)
2012/2013: 13.25pw (£689)
2013/2014: 13.55pw (£704.60)
2014/2015: the not yet known 2014/2015 rate
2015/2016: the not yet known 2015/2016 rate

That is based on the logic that in 2012/2013 people would have been out of time to pay at the original tax year cost for tax years up to 2009/2010, but for 2010/2011 and 2011/2012 they would have been in time.


The key message is that people, who reach SPA on or after 6th April 2016, should wait at least until they have their foundation statement (and arguably until just before 6th April 2019) before paying any further voluntary class 3 contributions.

momist

I was told on the telephone by the Pension Service last week that the rates for buying back previous years were:
2006/7 £689
2007/8 £689
2008/9 £689
2009/10 £689
20010/11 £704.60
20011/12 £655.20
20012/13 £689

No explanation was given for the different rates. This makes your first four entries correct, but the others different.

Can you explain your reasoning in waiting until 2019 to buy these years back? I'd have thought it was wise to get them before the goal posts move once again. I'm waiting for the pension statement, and for the changes in this April budget to be finally legislated, for which I can't seem to find any forecast date.

SnowMan

momist wrote: »

I was told on the telephone by the Pension Service last week that the rates for buying back previous years were:
2006/7 £689
2007/8 £689
2008/9 £689
2009/10 £689
20010/11 £704.60
20011/12 £655.20
20012/13 £689

No explanation was given for the different rates. This makes your first four entries correct, but the others different.

Can you explain your reasoning in waiting until 2019 to buy these years back? I'd have thought it was wise to get them before the goal posts move once again. I'm waiting for the pension statement, and for the changes in this April budget to be finally legislated, for which I can't seem to find any forecast date.

Thanks, that's very interesting.

The only one that differs from my figures is your 2010/2011 figure of £13.55pw compared with my £12.05pw figure. I've edited in annual amounts into my earlier post to make the difference clearer.

Before the concession you would now be out of time to pay today for 2010/2011 at the old tax year rate of £12.05pw, and so the current rate of £13.55pw would apply.

However the HMRC concession wording says that the 2010/2011 year can be purchased at the rate that applied in the 2012/2013 tax year.

You can read that in two ways:

1. In 2012/2013 you would have still have been in time to pay at the 2010/2011 rate, and £12.05pw is the rate that would have applied in 2012/2013 for the 2010/2011 tax year. Hence cost is £12.05pw, which is the interpretation that made most sense to me, or

2. As saying that the rate for buying 2010/2011 is the in year voluntary rate for buying 2012/2013 of £13.25pw. I wasn't expecting that to be the interpretation but the Pension Service figures suggest maybe it is.

If the second (Pension Service) interpretation is correct then someone delaying paying for 2010/2011 on the back of Steve Webb's verbal assurances will have lost out by not paying for that year before 6th April 2013 following the white paper.


The reasoning for waiting until 2019 is that until then the same years can be purchased at the same cost as buying them now. And so delaying paying

a) means you know (for sure) how you are affected by the transitional arrangements and know your foundation amount etc.

b) you can earn some interest on the money in the meantime while delaying paying.

I can understand why you might want to pay just in case the goalposts change. The HMRC concession does not seem to say that it is conditional on the flat rate pension changes being enacted. But at the same time the unlikely can happen and I guess it could conceivably change. But probably a) and b) above would be the overwhelming factors in a decision for most people hence my logic for delaying.

LardyCake

I recently applied online for for a statement of National Insurance account
see: http://www.hmrc.gov.uk/ni/intro/online-statement.htm

As well as showing your full NIC record, the statement includes a form allowing you to purchase voluntary Class 3 NICs. From this is would appear SnowMan's figures are correct (at least up to 2011-12).
The table from my statement:
tax year amount needed
2006-07 £689.00
2007-08 £689.00
2008-09 £689.00
2009-10 £689.00
2010-11 £626.60
2011-12 £655.20

It also says that these rates apply up to 05/04/2019 and that the last possible payment date for these years is 05/042023.

momist

Thanks, LardyCake.

I've been waiting for my wife's Pension Statement, hoping that it might give me that information. I've now just completed the request on the link you give, so the NI people might come back to us a bit faster.
I was somewhat doubtful of the figures I'd hastily scribbled down while talking to the lady at the Pension Service, as I couldn't see why 2010/11 should be so out of kilter with the others, but she was keen to get over a lot of other information and I neglected to go back and query that.

I have still been unsuccessful in my attempts to ascertain when the budget announcement on the new flat rate pension date will be made law, and the goal posts actually be moved, instead of an intention to move.

SnowMan

momist wrote: »

I have still been unsuccessful in my attempts to ascertain when the budget announcement on the new flat rate pension date will be made law, and the goal posts actually be moved, instead of an intention to move.

The draft pensions bill was published on 18th January 2013.

It has been scrutinised by a House of Commons select commitee; their report is here.

From that it appears the finalised bill will be placed before Parliament maybe next month.

However it will then presumably go through the parliamentary process of first readings and second readings and the House of Lords will interfere also with the democratic process so I imagine it will take some time.

In summary, I don't have any clue when the Bill will be passed (assuming that it is) :rotfl:

momist

Hmm. I'd better not take any drastic action yet then. There's many a slip . . .

I think I'd better look at buying the early years which are available as a concession, in case that window closes, and hang fire on the later ones. We need four years under the old rules, but nine under the new, and not too many years left to organise that, prior to pension age.

Thanks again SnowMan

LardyCake

momist wrote: »

Thanks, LardyCake.
... might come back to us a bit faster. ...

Don't hold your breath . Mine took at least three weeks to arrive after applying online.

SnowMan

Because of the relaxed timescales HMRC have suspended sending out deficiency notices to those coming under single tier see para 73 of the note 'National Insurance credits and the single-tier pension'

HMRC are also planning to review the delivery of deficiency notices in light of the introduction of the single-tier pension. Deficiency notices are sent out by HMRC that informs people they may have a shortfall in their National Insurance contributions and they are currently suspended for people who reach State Pension age on or after 6 April 2016