Can state pension qualifying years be bought while in employment?

volpen

My father is 50 years old, for the majority of his working life he was self employed, working at a company that went bankrupt 5 years ago. As I understand it he should have been an employee but the company was shady and he was working "self employed".

After the company went bankrupt he went to the Job Centre and was told that he was not eligible for any JSA because he had not paid the correct national insurance. Since then he has been working full time (as a salaried employee) earning around £25,000 per year.

The new state pension requires 35 years of national insurance contributions, however even if he has continuous employment until his (current) retirement age (66) he will only have 21 years of national insurance contributions. He has no private pension and recently had to liquidate all assets to cover debts.

How would he go about purchasing the extra years voluntary contributions as someone who is in full time employment? The information that I have found is not clear on whether or not someone in full time employment can do so, or if they must be in self employment. If he can purchase the extra years is there a limit on how many he can purchase and when? I have found a web page that reports the current cost at around £14 per week, does that mean we could pay £14,000 and purchase 20 years? Does the source of the money matter, could I pay for him for example?

He is currently waiting on a forecast to be sent out that will give him the exact details on where he stands, in the mean time we would like to know what his options are to get himself back to where he needs to be, so at the very least come retirement he has something.

[Deleted User]

Hi,

is this any help?

volpen

[Deleted User] wrote:

Hi, is this page any help?

Thank you for the link. If you click "you have to be eligible to pay voluntary contributions" the next page does not list his situation. My concern is that this means he is not eligible to purchase the missing years, but I cannot find anything that list in absolute terms if he is or isn't eligible -- and I don't want to guess.

[Deleted User]

Hi,

here's another wee link for State Pension forecast online, though things might be sluggish with the time of year.

Think you would be better to contact DWP re your query.

SeekTruth

volpen wrote: »

...
He is currently waiting on a forecast to be sent out that will give him the exact details on where he stands,...

Is this a State Pension forecast or a National Insurance statement. Whichever it is, it may be worth getting the other as well as they give different (complementary) information. [frugalmacdugal has provided the relevant links for both.]

jamesd

The source of the money doesn't matter though if you pay you should first pay it into a bank account of his so any cheque will be in his name. No problem to buy past years while employed, I bought seven myself for around £2400 one year while an employee.

There is a normal limit of buying back years for only the most recent six years. There are a few exceptions but none seem likely to apply to him. This means that he's potentially able to buy either one or two years, given the company going bankrupt five years ago. He'd have been able to buy six years back then. You are correct that he is no longer eligible to buy most of the years but there's a chance that he might be able to go back to 1996 or so due to HMRC failing to send out notices telling people that they hadn't paid in enough for a year to count. He should contact the Future Pension Centre once he has his statement. They are the people who will be able to give him a definitive answer to how many he can buy under current rules.

Since it appears that he may lose his ability to buy at least one year as soon as the next tax year starts he should be sure to act well before then.

There is a proposal that those who reach state pension age before the flat rate pension is introduced will be able to buy additional years but the rules and rates won't be announced for about a year. It's also possible, but I know of nothing announced, that something might allow your father to buy more years somehow.

volpen

jamesd wrote: »

The source of the money doesn't matter though if you pay you should first pay it into a bank account of his so any cheque will be in his name. No problem to buy past years while employed, I bought seven myself for around £2400 one year while an employee.

Thank you very much for all that information, I will pass it on to him and we will keep a look out for possible future changes.

John_Pierpoint

Do we take it from this thread that dad failed to pay in class 2 National Insurance (as well as possible class 4 NI) when he was "self employed" ?

AlsioHx

It might be worth really considering the value you are adding by buying extra years bearing in mind the likely new pension age and how many years you would need to receive it to cover the outlay. When the new flat rate penson was announced there was an annex to the announcement detailing the likely cost of buying extra years - it was much higher rate than presently . Eg to recoup a missing 5 extra years, i'd have to live way past 90 years to in any way cover the cost of buying those years because it added so little to the weekly pension amount.

Appreciate your father's position is different from min but worth checking what extra value he would be adding - i wonder if saving that cash would be better in the longer term.

jamesd

Years purchased under the current rules count normally towards the flat rate pension. Since the pension will pay more, the value of purchasing years at current rates has increased. Under current rules at payment levels a year can be bought for £705 and buys £3.67 a week, £190 a year. That £190 will increase once the flat rate comes in but there won't be a supplemental charge for those who bought under current rules. The MSE calculator gives a requirement to live just 4 years and 6 months to get into profit if buying the 2005-6 year and reaching state pension age in April 2029 with 21 years already paid in. Same for the 5 years he really seems to have at the moment, though that might not include three years of juvenile credits that he might be entitled to. Life expectancy for a 65 year old man in normal good health is currently around 23 years.

It's extremely unlikely that buying years would take until age 90 to break even. One year would buy 1/35th or £144 a week, which is £213.94 a year. Ignoring inflation and gains from investing the purchase price, age 90 for a person reaching state pension age at say 69 would mean a cost of at least £4,492.80.

So no, saving cash would not come close to the value of buying years now or under the flat rate system, except for a person with a very unusually short life expectancy.

volpen

John_Pierpoint wrote: »

Do we take it from this thread that dad failed to pay in class 2 National Insurance (as well as possible class 4 NI) when he was "self employed" ?

I will have to verify with him, as I understand it he was paying Class 2 contributions but not Class 4. He was told at the job centre that he had not paid the "right" national insurance, not that he had not paid any at all. He was paying tax so I assume he was paying national insurance.