Should I pay NI contributions for missing years?

br1anstorm

This is not so much a question, but rather an attempt to get comments on my actuarial arithmetic.

I've just hit the state retirement age of 65 - so I am in the current pre-April 2016 pension system. I have had a state pension estimate (and intend to defer claiming).

I have also had a statement of my NI contribution record. I have 42 qualifying years, so am entitled to the full basic state pension of £113.10 per week (for which a minimum of 30 years contribs are required). It seems I also qualify for an Additional State Pension (aka SERPS -** actually it's GRAD/GRB, see posts below**) based on my NI record, of £1.71 per week.

My NI statement shows that I have the option of making voluntary contributions for four additional years. As I understand it this will make no difference to my basic pension. But my pension statement says that "each extra qualifying year .... is worth at least £1.76 a week additional state pension".

To make up one of my 'missing' NI contribution years I need only pay £264.10. To make up the other three, I would have to pay £722.80 for each year.

Is it worth paying voluntary contribs for those extra years? As I see it, I would only have to survive for about 3 years (150 weeks at £1.76) to "gain" from the one extra year which would cost me £264.10 - so that looks like a decent bargain. But to get my money back if I pay lump-sum voluntary contribs for those other three years, each of which would cost me £722.80, I calculate that I would have to live, and collect my pension, for almost 8 years.

I'm certainly planning to live 8 more years! But I'm not sure if the eventual presumed gain is worth the immediate cost. Of course life is a gamble, and that's what actuaries and insurance companies bet on. But should I 'buy' only the one more NI year - or pay up for all four and hope I live long enough to get a return on my payment?

greenglide

You already have the maximum Basic State Pension - you cannot do anything to increase that.

Voluntary NI contributions do not earn extra Additional State Pension (GRAD, SERPS, S2P) so get you nothing.

br1anstorm

greenglide wrote: »

You already have the maximum Basic State Pension - you cannot do anything to increase that.

Yes, that much is clear and understood.

greenglide wrote: »

Voluntary NI contributions do not earn extra Additional State Pension (GRAD, SERPS, S2P) so get you nothing.

That's puzzling. Doesn't seem to square with what the DWP Pensions letter says, which is, "The 30 qualifying years maximum that applies to the basic State Pension does not apply to the additional State Pension. Each extra qualifying year you have between now and when you reach your State Pension age is worth at least £1.76 a week additional State Pension." (my underlining).

If paying extra (voluntary) NI contributions to increase the total number of qualifying years brings no benefit, why would the option be offered and lump-sum payment be invited?

greenglide

The additional qualifying years mentioned to get extra AP are for real, full fat, contributions from employment (or credits from getting child benefit, incapacity benefits etc), it does not apply to voluntary or self employed contributions.

There is other mechanism for increasing your AP.

br1anstorm

Thanks, greenglide - that advice is interesting and useful.

But it does indicate that the DWP's own guidance is not exactly helpful, and/or that the rules are illogical or inconsistent. I had simply taken the guidance at face value and assumed a qualifying year was a qualifying year, whatever rate of NI contribs was paid.

In fact, quite a few of my existing 42 years' NI contributions were paid on a voluntary class 3 basis (while I was employed by the British civil service but working overseas). Those contributions seem to have counted as "full fat", which makes it somewhat inconsistent for other voluntary contribs to be considered pointless or of no benefit.

sheramber

I note that you quote 'additonal State Pension' and not Additional State Pension.

The additonal State pension would refer to additional to the basic.

Spelt with a capital 'A' would apply to the Additonal State Pension rather than additonal to the basic State pension.

jamesd

br1anstorm wrote: »

I have also had a statement of my NI contribution record. I have 42 qualifying years, so am entitled to the full basic state pension ... My NI statement shows that I have the option of making voluntary contributions for four additional years. As I understand it this will make no difference to my basic pension. But my pension statement says that "each extra qualifying year .... is worth at least £1.76 a week additional state pension".

You are correct that there is no benefit to you from buying more years.

Buying years only get you more basic state pension and you already have the maximum possible basic state pension. Just go to the bank, get some notes and burn them and it would have the same effect but be more emotionally interesting.

br1anstorm wrote: »

To make up one of my 'missing' NI contribution years I need only pay £264.10. To make up the other three, I would have to pay £722.80 for each year.

That means that one year is a partial year and you're being asked for just the difference between NI paid and minimum NI to get the year to qualify. It's still not going to gain you anything so not worth doing.

br1anstorm wrote: »

I've just hit the state retirement age of 65 - so I am in the current pre-April 2016 pension system. I have had a state pension estimate (and intend to defer claiming).

Deferring is the way to go. You are in the fortunate position of getting 10.4% pro-rated a year, perhaps 75% of which is inheritable by a spouse, all inflation linked. With that sort of income available for your money you should laugh at anyone who tries to sell you an annuity!

br1anstorm

sheramber wrote: »

I note that you quote 'additonal State Pension' and not Additional State Pension.

The additonal State pension would refer to additional to the basic.

Spelt with a capital 'A' would apply to the Additonal State Pension rather than additonal to the basic State pension.

I'm sure you are trying to be helpful, sheramber, but I am not convinced this is correct, and I wonder if it is a red herring. If you are right, then the DWP letter is so badly drafted as to be confusing and misleading. The text seems sometimes to use a capital 'A' and sometimes a small 'a'.

For example, earlier in the same stock pension-statement letter it says - and I reproduce it exactly as printed :

"Additional State Pension and Graduated Retirement Benefit
On top of the basic State Pension some people also get the additional State Pension (also known as SERPS and the State Second Pension) and Graduated Retirement Benefit.... The amount of your additional State Pension could be lower..... especially if you were contracted out of the additional State Pension anytime between...."

[comment: capital 'A' only in the heading, lower case 'a' throughout the text]

The key sentence, which I quoted earlier - exactly as printed - says "The 30 qualifying years maximum that applies to the basic State Pension does not apply to the additional State Pension. Each extra qualifying year you have between now and when you reach your State Pension age is worth at least £1.76 a week additional State pension."

[comment: lower case 'a' is used - but it quite clearly refers to the separate SERPS/State Second Pension element].

This latter text clearly distinguishes between the basic and the additional State Pension. To me it says that extra qualifying years deliver £1.76 per week more on the additional State Pension (not a £1.76 per week increase on the basic State Pension!).

So I am still baffled. The consistent message from all who have respondedin this thread is that paying voluntary contribs for more years then the 42 I already have brings no benefit at all: no increase in the basic State Pension (I wasn't expecting that...), and no increase in the additional State pension either. So why does the DWP letter mention each extra qualifying year as being "worth" at least £1.76 a week if in fact it's worth nothing and isn't paid out?

jamesd

Buying years never increases Additional State Pension. The only way that the sentence makes sense is if the word additional should have been replaced by "more".

If the DWP letter has a contact phone number you can use that to clarify and suggest that they change the wording so it is not misleading.

xylophone

I suspect that the £1.71 in your statement is Graduated Retirement benefit.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/373460/dwp040-oct14.pdf

"Graduated Retirement Benefit (GRB)
The amount of GRB you may get when you reach State Pension age
will be based on how much you paid in graduated contributions.
You will have paid graduated contributions if, between April 1961 and
April 1975, you:
• were over 18
• worked for an employer and paid Income Tax and NI through the
‘Pay as you Earn’ (PAYE) arrangements
• earned over £9 a week at that time.
In your statement we will have included any GRB you may get in your
additional State Pension estimate - we have not shown the amount
separately.

You were in the Civil Service Pension Scheme for the whole of your career and so would not have built up SERPS - you were contracted out.

I suspect that you were earning too much to have benefited from S2P (succeeded SERPS in 2002) which did give some Additional Pension to low and moderate earners even if contracted out.

If you look at at page 11 of the booklet, you will notice the caveats in respect of those who are contracted out and in the case of Hamid (who isn't) he can only increase his AP before he reaches state pension age.

There is a reference to this https://www.gov.uk/government/publications/additional-state-pension-top-up

which may be of interest to your wife? Did she get a state pension estimate in the end?

br1anstorm

Once again, xylophone to the rescue! I deliberately started a separate thread on this because it seemed to be a different issue from those I had raised earlier about spouse-pension and deferral of state pension.

I confess that despite a career in the civil service I find the pension-guidance less clear and more confusing than most other official documents. Mind you, I never worked for the Inland Revenue....

Taking the points in order:

• yes, I think the £1.71 per week may well be GRB and not Additional State Pension. Which begs the question: if that be so, why did the statement not simply call it GRB to avoid confusion?
• I was employed between April 1961 and April 1975 (as per the pension booklet information on GRB) both in short-term summer-jobs and my initial year or two in the Civil Service. I have no idea now what, and how much, I may have paid in NI contributions then, but this does reinforce the notion that the £1.71 is GRB from that brief and low-paid period....
• I was indeed contracted out during my working career because I was in the Civil Service Pension Scheme, so will not have earned SERPS/S2P. Which begs the question: why didn't the pension statement say so in clear terms?

Anyway, the conclusion from all of this does seem to be that there is absolutely no point in my paying ANY additional NI contributions - whether the one part-year at £200-ish or the three other 'full' years at £700+ - because this will not result in any increase in any of the pension payments to which I may be entitled. Which again begs the question - why did the statement of my NI contributions set out the lump-sum figures to 'buy' those additional qualifying years and, effectively, invite me to pay, implying - for this is how I read it initially - that this would boost my [additional] pension?


Finally.... on the separate subject of my wife's NI record and state pension estimate, we're still waiting. We have sent a chaser to the NI office as it's three months since we made the online request for a statement of her NI contributions (and got an automated acknowledgment) .

We are 90% certain that she has not made sufficient contribs nor earned the child-benefit credits to reach the threshold (is it 20 years?) at which she would then be able to make additional Class 3 voluntary contribs to boost her own pension. We are hoping the NI statement will clarify the precise position. So we were assuming that she would probably only be eligible for (or would have to rely on) the 60% of State Pension as my spouse on the back of my full NI record.

That recent budget announcement to which you gave a link suggests that my wife may fall into the category of those who qualify for the new option from October 2015 to pay a Class 3A contribution to boost their state pension. On a quick skim, I can't see anything about a threshold which says that such people have to have already got a minimum of 20 qualifying years' NI in order to then 'buy' more years.

But we still need to know how many NI qualifying years she has so far, in order to work out whether she would do better (and be allowed) to pay these new Class 3A contribs to boost her own pension entitlement, or whether she would still be better off relying on 60% of the basic pension from my record as her spouse.

I'm not yet losing the will to live - but I hope we survive long enough to collect the pensions that we have spent so much time trying to figure out!