30 years contributions completed

budgetbrian

I attained 30 years National Insurance contributions several years ago and have continued to pay - am I wasting money now? Can I simply stop paying my voluntary contributions with no penalty to my full state pension?

CLAPTON

depends upon your age ; the new 30 will be 35 in 2016

jamesd

Under current rules your state pension entitlement continues to increase for a full working life. It does not stop increasing after 30 years. The maximum possible state pensions payment is about £250 without deferral, it can be considerably higher after deferring.

The Basic State Pension accrual currently ceases after 30 years. Payments beyond this add no BSP entitlement. Voluntary purchases count for this.

The Additional State Pension accrual continues for your whole working life and provides an earnings-related addition to the BSP. PAYE employees get this, self-employed not paid via PAYE don't get it. This is what S2P and formerly SERPS build up. Voluntary contributions do not increase this.

For those retiring now there can also be Graduated Retirement Pension that predates the Additional State Pension and this also adds to the amount. Accrual for this ended many years ago and continuing to work won't increase it.

It's the combination of these three pieces that can take the state pension payout to the £250 level for a person who worked a whole working life in a quite high paying job. Most won't get that high but £190 or so has been quite easy to get to for those with full working lives.

The proposed flat rate cut to pensions for employees will increase the BSP portion to £144 and eliminate the other two, meaning that most employees who work for a normal working life will end up with a substantial cut in their state pension entitlements. Those aged 45-50 or so and under with long PAYE working lives will lose. Those within a few years of state pension age should be protected by a calculation that checks both old and new rules and uses the higher value as a Foundation Amount. Anyone who has more than £144 will not get any future increases from paying in for more years. Anyone with less than £144 will be able to pay in (if of PAYE working age) to increase up to that level. Between 50 or so and close to state pension age the individual circumstances of each person will be what determines if they are better or worse off, most at the younger end will be worse off. Voluntary contributions are expected to count towards increasing this, just as they do now for the BSP.

Whether your money is being wasted first depends on whether you would retire after the introduction of the flat rate pension. Then it depends on whether your Foundation Amount calculation is more or less than £144. If it's more it's gaining you nothing, if it's less you're still gaining if it's from work but not gaining if it's from class 2 voluntary contributions.

So, stop making more class 2 voluntary contributions now. They will not help you now you have 30 years. But as soon as the flat rate scheme comes in the new ones after that can help you if you are still under £144. If you're under that then that's the time to resume voluntary contributions.

If you have been contracted out into a personal pension it's more likely that you will be in the gaining group than otherwise, if you have more years available to work to get up to £144 and aren't already over that. The reduced Additional State Pension from contracting out means that you'd both benefit from working longer and keeping the pension pot from contracting out.

The big winners from the flat rate scheme are those who didn't do much paid employment. The less that was done, the greater the benefit.

A person on unemployment benefits for life would be a major gainer, as would a person who only worked for a few years before just withdrawing from PAYE employment, a case that will include many women who stopped work and received credits for years because of receipt of Child Benefit.

mark55man

Thanks James - I know this is very complicated and I still haven't got my head around it (mainly because I am focussing on other pots, and because I am not going to change my career plans to game this system). However as a 50+ with a big chunk of contracted out time I think I am at worst in the middle and may possible be a gainer (which is nice, and means I can put it perhaps even a further bit back in my list of things to be thinking about).

gterr

jamesd wrote: »

Anyone with less than £144 will be able to pay in (if of PAYE working age) to increase up to that level. Between 50 or so and close to state pension age the individual circumstances of each person will be what determines if they are better or worse off, most at the younger end will be worse off.

<>

The reduced Additional State Pension from contracting out means that you'd both benefit from working longer and keeping the pension pot from contracting out.

I know everyone's different. but could you suggest if I would be better continuing Class 2 contributions in my case:

I have (just) 35 years' contributions, but about 13 years of these are contracted out employment, and 17 years low-income self-employed on Class 2 contributions. I obtained a forecast recently but this was based on the present system. It showed BSP of approx. £107 and ASP of £0.70. I am 58, female, due to reach SP age at 66, and have just sold my small business. I have the option of continuing part-time self-employment for a few years and continuing to make Class 2 contributions. Any ideas?

Thanks for your time.

zagfles

jamesd wrote: »

Under current rules your state pension entitlement continues to increase for a full working life. It does not stop increasing after 30 years. The maximum possible state pensions payment is about £250 without deferral, it can be considerably higher after deferring.

The Basic State Pension accrual currently ceases after 30 years. Payments beyond this add no BSP entitlement.

The Additional State Pension accrual continues for your whole working life and provides an earnings-related addition to the BSP. PAYE employees get this, self-employed not paid via PAYE don't get it. This is what S2P and formerly SERPS build up.

But the OP said he was paying voluntary conts, which won't count towards the ASP.

For those retiring now there can also be Graduated Retirement Pension that predates the Additional State Pension and this also adds to the amount. Accrual for this ended many years ago and continuing to work won't increase it.

It's the combination of these three pieces that can take the state pension payout to the £250 level for a person who worked a whole working life in a quite high paying job. Most won't get that high but £190 or so has been quite easy to get to for those with full working lives.

The proposed flat rate cut to pensions for employees will increase the BSP portion to £144 and eliminate the other two, meaning that most employees who work for a normal working life will end up with a substantial cut in their state pension entitlements. Those aged 45-50 or so and under with long PAYE working lives will lose.

That's too simplistic a statement - I'm in that group and I certainly won't lose. Those aged 45-50 with long contracted out records and who intend retiring early should gain.

Those within a few years of state pension age should be protected by a calculation that checks both old and new rules and uses the higher value as a Foundation Amount. Anyone who has more than £144 will not get any future increases from paying in for more years. Anyone with less than £144 will be able to pay in (if of PAYE working age) to increase up to that level. Between 50 or so and close to state pension age the individual circumstances of each person will be what determines if they are better or worse off, most at the younger end will be worse off.

Whether your money is being wasted first depends on whether you would retire after the introduction of the flat rate pension. Then it depends on whether your Foundation Amount calculation is more or less than £144. If it's more it's gaining you nothing, if it's less you're still gaining.

If you have been contracted out into a personal pension it's more likely that you will be in the gaining group than otherwise, if you have more years available to work to get up to £144 and aren't already over that. The reduced Additional State Pension from contracting out means that you'd both benefit from working longer and keeping the pension pot from contracting out.

The big winners from the flat rate scheme are those who didn't do much paid employment. The less that was done, the greater the benefit.

A person on unemployment benefits for life would be a major gainer, as would a person who only worked for a few years before just withdrawing from PAYE employment, a case that will include many women who stopped work and received credits for years because of receipt of Child Benefit.

And the self-employed. Also since 2002 child benefit payments can count towards the ASP.

zagfles

gterr wrote: »

I know everyone's different. but could you suggest if I would be better continuing Class 2 contributions in my case:

I have (just) 35 years' contributions, but about 13 years of these are contracted out employment, and 17 years low-income self-employed on Class 2 contributions. I obtained a forecast recently but this was based on the present system. It showed BSP of approx. £107 and ASP of £0.70. I am 58, female, due to reach SP age at 66, and have just sold my small business. I have the option of continuing part-time self-employment for a few years and continuing to make Class 2 contributions. Any ideas?

Thanks for your time.

As I understand it - in your situation more class 2 before the switchover date (currently April 2016) will get you no extra pension, but more class 2 after that date will!

You have the max years under the new rules, so can't increase this, a contracted out deduction will be applied but that will be the same regardless. You have the max BSP under the old rules. So as I understand it you won't get more from class 2 conts before April 2016. But after April 2016, you'll be able to increase your pension through class 2 towards the £144 max.

Don't rely on this - hopefully someone else will confirm my understanding!

SeekTruth

My reading of http://www.hmrc.gov.uk/ni/volcontr/whentop-up.htm, in particular the section headed 'Extended time limits for the tax years 2006-07 to 2015-16' suggests that anyone reaching State Pension Age on or after 6 April 2016 should not pay voluntary NI contributions until they are certain of the impact on their transition to the Single Tier State Pension. If they then decide to pay contributions it won't cost them any extra provided they do so by 5 April 2019.

gterr

zagfles wrote: »

As I understand it - in your situation more class 2 before the switchover date (currently April 2016) will get you no extra pension, but more class 2 after that date will!

You have the max years under the new rules, so can't increase this, a contracted out deduction will be applied but that will be the same regardless. You have the max BSP under the old rules. So as I understand it you won't get more from class 2 conts before April 2016. But after April 2016, you'll be able to increase your pension through class 2 towards the £144 max.

Don't rely on this - hopefully someone else will confirm my understanding!

Many thanks. That was pretty much my understanding too.
As SeekTruth says, I could stop paying Class 2s now, and see if the situation pans out as we expect, and then make voluntary contributions again after April 2016. However, if I did this would these not have to be Class 3 voluntary contributions, rather than Class 2s?

I am thinking that it might be better if I continued to be registered as self-employed (arguably with perfect legitimacy) and pay Class 2s, at least until April 2016, and then continue my Class 2s beyond 2016 if worthwhile. I'd end up paying at least 1 years' worth of Class 2s without merit, but since Class 2s are much cheaper than Class 3s I'd be better off overall if I did continue beyond 2016. Alternatively, I could cease self-employment now, and restart self-employment in 2016 - but surely this would be viewed as gaming the system, and some restriction would be placed to prevent everyone doing this??

jamesd

zagfles wrote: »

But the OP said he was paying voluntary conts, which won't count towards the ASP.

True and I've clarified with explicit statements about voluntary contributions, thanks.

zagfles wrote: »

That's too simplistic a statement - I'm in that group and I certainly won't lose. Those aged 45-50 with long contracted out records and who intend retiring early should gain. And the self-employed. Also since 2002 child benefit payments can count towards the ASP.

I know and agree and covered contracted out later but it was already a long essay about a tough to summarise thing. Perhaps budgetbrian might use that and other comments for clues about what we might need to know to give a better answer.

jamesd

mark88man wrote: »

as a 50+ with a big chunk of contracted out time I think I am at worst in the middle and may possible be a gainer

You're almost certainly a gainer, like others with contracted out time of your sort of age (and younger, maybe even as young as 40 or perhaps younger still sometimes). You win because you keep the contracted out benefits but can continue getting more state pension credited under the new system to get to £144. And at 50+ but not 60+ you almost certainly have time to get all the way to £144 from a combination of working and voluntary contributions.

gterr wrote: »

could you suggest if I would be better continuing Class 2 contributions in my case:

I have (just) 35 years' contributions, but about 13 years of these are contracted out employment, and 17 years low-income self-employed on Class 2 contributions. I obtained a forecast recently but this was based on the present system. It showed BSP of approx. £107 and ASP of £0.70. I am 58, female, due to reach SP age at 66, and have just sold my small business. I have the option of continuing part-time self-employment for a few years and continuing to make Class 2 contributions. Any ideas?

Easy part first. Do not make any more voluntary class 2 contributions until the flat rate scheme comes in. You cannot gain from them now you have 30 years.

Then once the flat rate system comes in, you can gain from more years, whether it's working or buying voluntary years, so that would be a time to resume doing that and getting up to £144.

So I agree with zagfiles' comprehensive answer: take a break for a couple of years.

Unfortunately it's impossible to guarantee that these answers are right: they are based on what we know now but the rules could be changed so that more years bought now under current do count even if over 30 years. But what we also know that SeekTruth pointed to is that if in doubt, you can just wait and rely on the transitional protection to buy past years once you know what your Foundation Amount is. At that point it should be possible to give more reliable answers that aren't subject to all of the uncertainty there is today.