Questions About Voluntary National Insurance Payments (and Contracting Out!)

lejog2003

I've just received my new pension forecast which contained no surprises, but was a bit sparse.

I reach retirement age in June 2021 and have 28 qualifying years NI, all gained up to 2002. I was in a company money purchase pension scheme between 1982 and 2002 and was contracted out from a date backdated as far back as possible until 2002. I won't be paying any further (non-voluntary) NI until I retire.

The statement shows an entitlement under the new rules of £62.77 a week and under existing rules of £136.17.

My main questions are about paying Class 3 voluntary National Insurance Payments.

1) I assume its no use paying 7 years NI to reach 35 qualifying years for the new pension, so the maximum it is worth paying is 2 years to reach 30 for the old. Is this correct?
2) I see there are new rules about paying for "gap" years. Is it true that I now have until April 2019 to pay for gaps between 2006 and 2010 at £13.25 per week? Or do I have to pay by 2016 to increase entitlement under the old rules?

A third less important question, is the difference between my basic entitlement and the quoted entitlement under the new system (i.e. (£148.40 * 28/35) - £62.77) = £55.95) a measure of the additional pension I would have received if I had stayed contracted in?

greenglide

What I would do is pay no more until 6/4/2016 and then pay class 2 self employed contributions (if you still can - they could change the rules) until your starting amount of £136 reaches the maximum nSP amount of around £148 at todays money. Each years contributions will get you around £4.25 or so which means you could reach the maximum in three years or so.

lejog2003

I thought Class 2 contributions were for self employed people? I should have added I'm currently drawing a pension from a SIPP in drawdown. How can I pay Class 2 contributions?

But I think I understand now the difference between gaining extra years before and after 2016. Is this right? Before 2016 accrues only £3.75 (£113.20/30) a week up to a max of 30 years (2 years in my case), while after accrues £4.24 a week to bring the starting pension up to the flat rate pension.

greenglide

The target is either 35 years under current rules by 6/4/2016 (only one year left after this year) or the nSP maximum after 6/4/2016 (two or three years).

Currently "anyone" can be self employed without actually getting any work.

DaveMcG

Osborne said in the budget that he would abolish Class 2s in the next parliament (if elected obv).

I think that you have to declare that you are self employed to HMRC and they are stopping the payment of Class 2s separately from tax returns (eg by direct debit) imminently. They also appear to be applying a profit threshold from 2015/16.

You should be able to pay 3 years voluntary contributions just prior to state pension age.