Voluntary NI?

prestonway

Would a spouse benefit from paying voluntary NI contributions to get a State Pension? One is 51, one with 30 qualifying years and intends to make a further 5 years voluntary contributions to get 35 qualifying years, the spouse is 42 and has 10 qualifying years, not working or claiming benefits, so the question is whether it is worth the spouse with 10 qualifying years making any further voluntary contributions?

The MSE page on State Pension says:
If your partner hasn't built up their own state pension, they'll still be able to claim a state pension based on your record. The maximum in this situation is £67.80 a week. If buying extra years won't beat the income you'd receive by claiming the couple's pension then don't do it."

But elsewhere I have read that from April 2016 State Pensions for each partner will be based on each persons individual number of years NI contributions, not the record of the spouse.

Should the spouse with 10 qualifying years making any further voluntary contributions or not?

greenglide

There is a transitional protection to allow a spouse to get part of the spouses pension if they haven't got their own 100% but I believe it is limited and would never get more than you would get under the present rules (80% or so of the current £111 or so). See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181235/derived-inherited-entitlement.pdf

prestonway

Thank you for the reply, but the document you link to leaves me none the wiser.

greenglide

It is "somewhat" complicated isn't it?

You certainly wouldn't get more than £67.80 (the CAT B rate) from the transitional protection.

Whether you should pay voluntary contributions depends on whether you think the 15 years of voluntary contributions is worth it. Each will get you approximately £4.10 worth of pension. After 7 years of contributions you will be definitely "in pocket" as your entitlement will be over £67.80. After 15 years (just achievable) you will reach the full amount.

This is all subject exact number of years and subject to no further changes in legislation in the next 15 years.

Only you can decide if it is worth it.

JezR

Your circumstances are that you would both reach state pension age under the single tier rules. This is scenario 3 in the paper linked to above.

There would no longer be any derived entitlement to a category B pension from the others contributions.

Basically that means no inheritance of pensions either way except for what is called the 'protected payment', which basically in your case would be any pension above the single tier rate (usually shown as illustrations as £144). This would be inheritable at 50%, with the amount increased each year in line with CPI.

Get a pension forecast for both first to get the personal entitlement under the current scheme. If the pension for the one with 30 years contributions is over the single tier value taking additional state pensions into account there is no point in that individual making any further voluntary contributions.

prestonway

greenglide wrote: »

It is "somewhat" complicated isn't it?

You certainly wouldn't get more than £67.80 (the CAT B rate) from the transitional protection.

Whether you should pay voluntary contributions depends on whether you think the 15 years of voluntary contributions is worth it. Each will get you approximately £4.10 worth of pension. After 7 years of contributions you will be definitely "in pocket" as your entitlement will be over £67.80. After 15 years (just achievable) you will reach the full amount.

This is all subject exact number of years and subject to no further changes in legislation in the next 15 years.

Only you can decide if it is worth it.

Yes it is complicated. Where does the "15 years (just achievable)" voluntary contributions come from? At age 42 with 10 years contributions, is it not possible (if it made sense) for the spouse to make a further 25 years voluntary contributions up to age 67, to give the maximum 35 years contributions for entitlement to the maximum pension?

Also "After 7 years of contributions you will be definitely "in pocket" as your entitlement will be over £67.80." Do you mean after a further 7 years (so 17 in total as 10 years have been made)?

I think the key to the answer to my question may be whether the MSE page on this topic is out of date. As I said in the OP elsewhere I have read that from April 2016 State Pensions for each partner will be based on each persons individual number of years NI contributions, not the record of the spouse. If this is the case it would seem to make sense for the spouse to continue to make as many years voluntary contributions as possible to maximize their own State Pension would it not?

prestonway

JezR wrote: »

Your circumstances are that you would both reach state pension age under the single tier rules. This is scenario 3 in the paper linked to above.

There would no longer be any derived entitlement to a category B pension from the others contributions.

Basically that means no inheritance of pensions either way except for what is called the 'protected payment', which basically in your case would be any pension above the single tier rate (usually shown as illustrations as £144). This would be inheritable at 50%, with the amount increased each year in line with CPI.

Get a pension forecast for both first to get the personal entitlement under the current scheme. If the pension for the one with 30 years contributions is over the single tier value taking additional state pensions into account there is no point in that individual making any further voluntary contributions.

Thank you JezR. Forecasts have been obtained for both (£113 pw and £49 pw).

I don't understand the bit about inheritance and protected payments. Never heard of those before! Also still none the wiser whether it is a good idea for the spouse with 10 years contributions to make voluntary contributions every year to try to maximize their own State Pension entitlement.

greenglide

The MSE page seems to be up to date with the current rules - the CAT B rate is currently £67.80.

As I said there is transitional protection that will be in place. Unfortunately this is described in the document I linked to. There is one certainty - the protection will not give more that £67.80.

From the age it is "just" possible to make the 25 years voluntary contributions to get the full pension - based on 35 years being needed.

Currently you have 10/35 entitlement = £41 at todays money (assuming the STP amount is £144). To get ahead of the CAT B rate of £67.80 requires a further 7 years which is 7 * £4.1. From that point onwards you would seem to be "in pocket".

The key is the amount of transitional protection you get. The document I linked to and use of Google to find further details are the key as are searches for "safeguard amount". See section 4 of that document. Note that that document is quite old - the date for STP has been brought forward to 2016 and there should be other documents about it.

JezR

prestonway wrote: »

Thank you JezR. Forecasts have been obtained for both (£113 pw and £49 pw).

I don't understand the bit about inheritance and protected payments. Never heard of those before! Also still none the wiser whether it is a good idea for the spouse with 10 years contributions to make voluntary contributions every year to try to maximize their own State Pension entitlement.

The £113 figure for 30 years contributions suggests little / no additional pension component as it more or less matches the basic pension of today. So protected payments and additional pension inheritance is not a factor to consider.

Using the £144 figure (which has been pointed out is misleading because it was an illustration that is no longer accurate), every
year of voluntary contributions would buy £4.11pw pension, ie nearly £214pa, to the maximum of £144.

One uncertainty that I think still exists, unless someone has spotted it, is what what the cost of voluntary contributions will be under the new pension regime.

prestonway

greenglide and JezR

Thank you both for your answers. I think it is clearer now. It looks like the safe option is to ignore the transition protection, protected payments and additional pension inheritance rules as they do not look relevant, and continue to make voluntary contributions every year to maximize the final State Pension amount.

prestonway

JezR wrote: »

The £113 figure for 30 years contributions suggests little / no additional pension component as it more or less matches the basic pension of today. So protected payments and additional pension inheritance is not a factor to consider.

Using the £144 figure (which has been pointed out is misleading because it was an illustration that is no longer accurate), every
year of voluntary contributions would buy £4.11pw pension, ie nearly £214pa, to the maximum of £144.

One uncertainty that I think still exists, unless someone has spotted it, is what what the cost of voluntary contributions will be under the new pension regime.

Out of interest why is the £144 pw figure for the flat rate of a full State Pension misleading/inaccurate?