National Insurance contributions and State Pension

peterg1965

I applied online for my wife and my own statement of NI contributions. We received our statements yesterday which state that my wife has 33 years of class 1 contributions since 1978 (she is 51) and I have 32 years contributions since 1982 (I am 48). Both are correct up to 1 April 13, so those figures go up by one at the beginning of Apr 14.

According to the letter we both qualify for full State pension of £110/week. We are both in FS pension schemes for therefore 'contracted out' but the NI statement does not differentiate between contracted in or contracted out class 1 NI. So, come the new Flat rate State Pension in 2015, what will this mean to us? I understand we both require 35 years of contributions to qualify for the SP in 2029 and 2032 respectively. Do we qualify for the full amount or is abated due to having contracted out. My confusion stems from the lack of detail on the NI statement.

jem16

peterg1965 wrote: »

According to the letter we both qualify for full State pension of £110/week. We are both in FS pension schemes for therefore 'contracted out' but the NI statement does not differentiate between contracted in or contracted out class 1 NI.

If you were not contracted out your statement would also show an amount for SERPS/S2P. Does your statement mention any of this? Basically what does the statement say your likely state pension will be?

So, come the new Flat rate State Pension in 2015, what will this mean to us? I understand we both require 35 years of contributions to qualify for the SP in 2029 and 2032 respectively. Do we qualify for the full amount or is abated due to having contracted out. My confusion stems from the lack of detail on the NI statement.

You will not qualify for the full flat rate statement but the amount that will be deducted is not yet known.

peterg1965

The statement has a column for class 1,2 and 3 NI contributions and another with the actual amount paid over the respective 12 month period. It does not break down beyond that, the covering letter makes no reference to SERPS /S2P or contracting out. It does stress that it is not a pension statement but a record of NI paid. All of our contributions are in the class 1 column. So, it sounds as if it is of only limited benefit.

SeekTruth

peterg1965 wrote: »

I applied online for my wife and my own statement of NI contributions. We received our statements yesterday which state that my wife has 33 years of class 1 contributions since 1978 (she is 51) and I have 32 years contributions since 1982 (I am 48). Both are correct up to 1 April 13, so those figures go up by one at the beginning of Apr 14.

According to the letter we both qualify for full State pension of £110/week. We are both in FS pension schemes for therefore 'contracted out' but the NI statement does not differentiate between contracted in or contracted out class 1 NI. So, come the new Flat rate State Pension in 2015, what will this mean to us? I understand we both require 35 years of contributions to qualify for the SP in 2029 and 2032 respectively. Do we qualify for the full amount or is abated due to having contracted out. My confusion stems from the lack of detail on the NI statement.

My understanding is the relevant legislation for the proposed Single Tier State Pension has not yet been passed and so NI statements (and Pension forecasts) will, at the moment, just show the situation under current legislation.

The proposal is that the switch to Single Tier will take place in April 2016. At that time, for everyone that has not by then reached State Pension Age, two calculations will be performed:
1. Entitlement under the current scheme.
2. Entitlement under the new scheme (with deductions for contracted out service).

The larger of these 2 figures is then the entitlement at transition (termed Foundation Amount). For those with a Foundation Amount less than the Single Tier full pension (possibly £144/wk in 2012/13 money) each additional year of NI contribution after April 2016 will earn 1/35 of the Single Tier full pension, but this mechanism will not take one above the full pension level.

For the OP and spouse it sounds as though their entitlement under the current scheme is £110/wk (in 2013/14 money). Therefore their Foundation Amounts will be at least this amount. They will then potentially have a further 13 years and 16 years of NI contributions (for spouse and OP respectively) before State Pension Age which is ample to take each of them up to the full Single Tier Pension.

peterg1965

SeekTruth, that makes a lot of sense, thank you. I realise that the Single Tier SP is not yet on the statute books, but no mention is made of it in the statement.

Given that my wife and I will probably retire well before our respective SP age, in fact probably well before, we will probably not pay many years NI after 2016 so will probably not make much progress towards achieving the full single tier pension from our current contracted out entitlement.

mark55man

I understand the cheapest way to make up contributions on the new system is for your OH and yourself to become self employed (even if very notionally).


I don't know what the position is for the new system

peterg1965

mark88man wrote: »

I understand the cheapest way to make up contributions on the new system is for your OH and yourself to become self employed (even if very notionally).


I don't know what the position is for the new system

We will look into this when the details are announced. I will probably work until at least 2020 so will get 4 years worth of making up the ground with the flat rate system, my wife will probably stop work at the latest in 2017. If we can pay a nominal amount of self employed NI contributions it may be worth it but would have to do the number crunching. We will both be well served with FS pensions so it's not the end of the world for us.

jamesd

It will be beneficial to use the self-employment route or to buy extra years. You'll get around £4.20 a week / £218 a year for each year purchased until you reach £144 total state pension under flat rate rules. That means about six to seven years to get from only current basic state pension to full flat rate. Even at some of the higher amounts that have been speculated about to buy years - £800 sort of level - it would only take a few years of receiving the state pension to get ahead.

peterg1965

jamesd wrote: »

It will be beneficial to use the self-employment route or to buy extra years. You'll get around £4.20 a week / £218 a year for each year purchased until you reach £144 total state pension under flat rate rules. That means about six to seven years to get from only current basic state pension to full flat rate. Even at some of the higher amounts that have been speculated about to buy years - £800 sort of level - it would only take a few years of receiving the state pension to get ahead.

Thanks James. When the details are published it will most certainly be worth looking into. How much would we have to pay into self employed NI at the lowest level for it to count?

jamesd

£2.70 a week for class 2 NI at the moment but that may change.

atush

peterg1965 wrote: »

The statement has a column for class 1,2 and 3 NI contributions and another with the actual amount paid over the respective 12 month period. It does not break down beyond that, the covering letter makes no reference to SERPS /S2P or contracting out. It does stress that it is not a pension statement but a record of NI paid. All of our contributions are in the class 1 column. So, it sounds as if it is of only limited benefit.

You just got a record of contributions. What you need (and it says it isn't) is a Statement. This wil include any S2P paid.


It is my understanding that going forwards all years you work will include some S2P as you are no longer contracted out. So I would get that statement and see your projected pension incl s2p- this will be preserved under the new system. And then wait to add more years etc, once the full rules for adding after the change are known?