Class 2 NI Gaps question

phillip_swift

I've just been looking over my (shocking) finances and trying to sort a few things out but I've got a question about my Class 2 NI gaps.

I'm self employed and for various reasons including bad admin by me and living abroad for a time I've got a total of 7 years (I think) gap in my full class 2 NI contributions.

Tax has always been paid on my earnings and I've always paid Class4 NI.

I'm 35 years old so will more than likely be working until i'm 68.

I have 9 years full NI already and from glancing at the new rules am I correct in thinking that I'll only need 35 years in order to get a full state pension? I now pay full NI and hopefull will do until I stop working.

Am I also correct in thinking that I don't actually need to make up my NI shortfall in order to claim my full entitlements?

That doesn't seem right but if I can get away without paying it then obviously I will.

Have I understood everything correctly though.

greenglide

You are correct about the pension entitlement. Providing you have 35 years of contributions which are not contracted out then you will qualify for a full STP pension.

If you have ever been contracted out of SERPS / S2P by being a member of an approved pension scheme (either employer or personal pension) then the pension will be reduced by the "rebate derived amount". Any years accumulated above 35 would reduce this.

As to the impact of not having paid the class 2 for any other reasons I wouldnt know.

SeekTruth

First I should emphasise that I think the OP will probably get a full STP without filling in his NI contribution gap. He should, however, obtain a statement of his Foundation Amount under the Single Tier Pension when that becomes available, presumably in about April 2016.

greenglide wrote: »

You are correct about the pension entitlement. Providing you have 35 years of contributions which are not contracted out then you will qualify for a full STP pension....

That is not my understanding of the available information. As I read the information if you, for example, have 40 years of contributions of which 5 are contracted out then the rebate derived amount for the 5 contracted out years will be deducted from the full STP. So it is quite possible for someone to have less than the STP even with 35 years of contributions that are not contracted out.

Triumph13

SeekTruth wrote: »

That is not my understanding of the available information. As I read the information if you, for example, have 40 years of contributions of which 5 are contracted out then the rebate derived amount for the 5 contracted out years will be deducted from the full STP. So it is quite possible for someone to have less than the STP even with 35 years of contributions that are not contracted out.

That is certainly a possible interpretation. I would lean towards the fabled contracted out deduction not turning any year negative, but until we finally see the rules on how it's calculated there is no way to be sure.

In the OPs case he should have more than enough years post 2016 to get up to full STP with foundation amount based on the old method so it shouldn't be an issue.

What I really wouldn't want to bet on though is the 35 year requirement staying constnat for the next 33 years or more. Given how many times it has changed recently I would be very surprised if it now remained stable over that timeframe.

Triumph13

Having just found this technical note it's pretty clear I was wrong above and years can 'go negative'!
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

Still shouldn't be an issue for the OP though

Linton

SeekTruth wrote: »

First I should emphasise that I think the OP will probably get a full STP without filling in his NI contribution gap. He should, however, obtain a statement of his Foundation Amount under the Single Tier Pension when that becomes available, presumably in about April 2016.


That is not my understanding of the available information. As I read the information if you, for example, have 40 years of contributions of which 5 are contracted out then the rebate derived amount for the 5 contracted out years will be deducted from the full STP. So it is quite possible for someone to have less than the STP even with 35 years of contributions that are not contracted out.

Yes BUT if they were contracted out with a DC pension they would have a similar amount to the rebate, if not more, in an additional private/company DC pension. So the rebate is just deducting money they have already received.

The situation for DB pensions is slightly different in that the contracted out amount is regarded to be part of the DB pension, so again the rebate isnt a loss. It merely reflects money which is already accounted for.

srcandas

For the OP it is evident we need a crystal ball. I'm trying to plan just 9 years ahead and it is impossible to have any certainty.

I guess the obvious advice would be to stash the money for the missing years NI somewhere nice and safe. As retirement gets nearer I'm sure there will be ways to buy back more entitlement if required or if nothing else use the stash to supplement the lesser pension.

Of course stashes have a habit of disappearing over time but the memories of my recent trip to the Philippines linger on

ps I remember missing one years NI (1969 possibly) when a betterwear salesman. HM wanted £64 odd and I'd spent it. Borrowed it off my dad and dutifully went to the tax office ready to hand over the readies. The tax man had a thoughtfull look on his face. He said 'to be honest not paying this is very unlikely to impact your pension so shall we just forget it?'. Hope the chap had a long and happy life. Spent the cash on a Lambretta and my dad, as dads do, slowly soaked up the debt

Not all tax men are bad eggs