national insurance qualifying years

Spicey

I understand that you would have to earn at least £5668 during this tax year to make a qualifying year for the state pension scheme. this works out to £109 a week. As you do not have to pay NI until you earn £149, does this mean that you still get qualifying years even without paying NI, if you earn say £130 a week? Hope someone out there Knows the answer to this.

molerat

Simple answer, yes. The employer must report earnings above £109 pw so NI can be credited.

zagfles

Yes, though if your income is variable you could earn that amount and not get a qualifying year, for instance any week your earn under £109 (or monthly equivalent if paid monthly) none of that income will count.

So if you earn £130pw, you pay no NI yet it will be a qualifying year.

If you earn £160pw for half the year and £100pw for the other half, you will pay NI, but it won't be a qualifying year!!

Yes it's a stupid system!

Spicey

Thank you, that clears that up for me.

property.advert

zagfles wrote: »

...
If you earn £160pw for half the year and £100pw for the other half, you will pay NI, but it won't be a qualifying year!!

Yes it's a stupid system!

So what is the calculation to determine a qualifying year ?

jackyann

I wanted to look this up for a friend and couldn't easily find out. It used to be 28 weeks (or the equivalent) out of 52 - I know this because of how my maternity benefits were worked out over 30 years ago!
I couldn't find a simple answer and it seems the way to find out is to submit a question about your own contributions.
I would have thought that finding out how much = a qualifying year in each class would be simple (and maybe it is, if some kind MSEr can tell us!)

zagfles

You couldn't find a simple answer because there isn't one. The answer is complicated!

See p.18 onwards:

http://www.dwp.gov.uk/docs/dwp026.pdf

SnowMan

property.advert wrote: »

So what is the calculation to determine a qualifying year ?

jackyann wrote: »

I would have thought that finding out how much = a qualifying year in each class would be simple (and maybe it is, if some kind MSEr can tell us!)

The calculation is whether qualifying earnings are more than the lower earnings limit of £5,668 (2013/2014) during the tax year.

However in calculating qualifying earnings only pay periods where earnings are above the LEL of £109pw are taken into account, otherwise earnings are ignored.

Note also any earnings above the upper earnings limit for any pay period (£817 pw if paid weekly) are also ignored in calculating qualifying earnings. Not certain of that upper figure there so please correct me someone if this is wrong.

So for someone paid weekly who is paid below £109 for that week (where £109pw is the weekly LEL) those earnings are ignored.


Example:
An employee is paid weekly and receives £100pw for 26 weeks and £200pw for the next 26 weeks of 2013/2014.

Because for the first 26 weeks earnings are below the LEL of £109pw they are ignored completetely.

Earnings for the second 26 weeks are all taken into account. Total earnings for that period (note all below the UEL) are 200 x 26 = £5,200.

So total earnings for qualifying years purposes are £5,200, below the annual LEL of £5,668.

This means there are 5200/5668 x 52 = 47 qualifying weeks (I am assuming they round down part weeks but that is a guess)

You need the full 52 qualifying weeks to get a qualifying year to count towards basic state pension.

In this example HMRC will give you the opportunity to buy a further 5 weeks (=52 - 47) to turn the year into a qualifying year for basic state pension.


Adjusted example
If earnings had been £100pw for 26 weeks and £300pw for the next 26 weeks, total qulaifying earnings taken into account would have been £7,800 (= 26 x 300).

As this is above £5,668 this would count as a qualifying year even though earnings for the first 26 weeks are ignored.

This is because the excess over the second 26 weeks makes up for the lack of qualifying earnings in the first 26 weeks.

zagfles

SnowMan wrote: »

Note also any earnings above the upper earnings limit for any pay period (£817 pw if paid weekly) are also ignored in calculating qualifying earnings. Not certain of that upper figure there so please correct me someone if this is wrong.

Earnings above the UAP (upper accrual point) are ignored, this is £770pw and has been fixed for a few years. It was part of the previous govt's plan to flat-rate the state pension - fix the UAP while increasing the low earnings threshold with wage inflation. And of course furher removing the link between contributions and benefits, you still pay full rate NI up to the UEL (which is down to £797 this year, as the 40% threshold has gone down this year).

SnowMan

zagfles wrote: »

Earnings above the UAP (upper accrual point) are ignored, this is £770pw and has been fixed for a few years. It was part of the previous govt's plan to flat-rate the state pension - fix the UAP while increasing the low earnings threshold with wage inflation.

Thanks.

The UAP was introduced to limit the earnings on which S2P was based.

What I wasn't sure about was whether it was earnings up to the UAP or earnings up to the UEL that were taken into account in determining whether a year was a qualifying year for BASIC state pension purposes.

Normally for someone around or above the UEL level of earnings it won't make a difference because their tax year earnings will be well above the £5,668 threshold, regardless of whether the UEL or UAP was used.

But an example of where this could make a difference would be someone who is a higher rate taxpayer for a month say who then has no earnings for the rest of the tax year. Are you confirming that in this slightly unusual scenario it is the UAP (rather than UEL) that also applies for the purposes of determining earnings to see if someone gets a qualifying year for BASIC state pension?