New State Pension starting amount and full record of qualifying years- trial service

coyrls

If you're worried about a change in policy, I would suggest you buy as soon as you can, as they are unlikely to take away what you have already purchased. If you wait to buy, either the policy or the cost could be changed.

SnowMan

jingleberry wrote: »

Just to be clear, the headline figure from my forecast, which assumes NI contributions are added to my record until I reach the maximum, is £152.59 pw. The amount based on my current NI record (it actually includes 36 full years contributions) is £119.69 pw. Starting from 6 April 2016 there are 7 full tax years until I reach state pension age at the end of April 2023.

152.59 = 119.69 + (7 x 4.45) + 1.75

They are making a blanket assumption that you might earn £1.75pw of additional state pension (S2P) for 2015/2016 (see earlier discussion in the thread starting around post 326). If you are working and earning less than £5,824pa then you won't in practice earn that S2P (unless you get it for some other reason such as caring).

So if you get the 7 post April 2016 years (through buying them or otherwise) you will get yourself up to £150.84pw in 2016/2017 terms (7 x 4.45 + 119.69). That amount is increased up to SPA (and after) currently in line with the triple lock (higher of CPI price inflation, earnings inflation and 2.5%).

If I understand you correctly, I have the option of making class 3 voluntary contributions (currently £14.10pw or £733.20 pa) for each of the next 7 years. Each years contributions will yield an additional £4.45pw/ £231.40 pa pension (the contribution rate and the 'yield' will both go up with inflation in future years) so as you say this is very good value - each years class 3 contributions pay for themselves in extra pension after just over 3 years.

Have I understood you correctly? If so making these contributions seems like a no-brainer.

That's correct. You should really factor in tax when the extra state pension is paid which might change it to say 4 years based on 20% tax (say).

The £14.10pw class 3 rate rate for 2016/2017 could increase in later years (there's no guarantee that it will just go up with inflation) but it would have to be a significant increase to really change the decision.

One risk is that there is a change in government policy in the future meaning any contributions I make are wasted. To avoid this I would like to delay making all contributions until just before I reach state pension age in 2023, then make all seven years retrospectively. Does this sound sensible, or even possible?

You have 2 years after the end of the tax year to pay at the in year rate (£14.10pw for 2016/2017). So you would have to buy the 2016/2017 year by 5th April 2019. There is actually an absolute deadline of 6 years (by 5th April 2023) but that would be at the then class 3 rate which could be higher than £14.10pw.

For 2017/2018 the deadline (unless the deadlines are changed) for the in year rate would be 5th April 2020 and so on.

jingleberry

Thank you snowman and coyrls for your excellent advice. I have given myself a diary note to pay each years contributions soon after the end of each tax year, with payments starting in April 2017 (for 2016/17). This opportunity would certainly have passed over my head if I hadn’t happened to chance upon this thread. Hopefully it is relevant to others reading this forum as well. Once again, many thanks.

gadgetmind

Note that for the next two years, you have the option to register as self employed and then pay voluntary Class 2 at about £130 pa when you complete your self assessment (which you will need to do). This used to be a good deal when it earned you 1/30th of old basic SP, but is a screaming bargain at 1/35th of the new figure. I guess this is why it's being phased out.

jingleberry

Thanks gadgetmind I’ve had a look at registering as self-employed and paying class 2 but it seems a bit too complicated for a simple minded soul like me. I can imagine myself filling in a wrong box and lumbering myself with a tax bill! My instinct is to pay the higher class 3 rates.
Is there any guidance on the actual process of paying the class 3 contributions? I'm assuming that the contribution to fill the 2016/17 tax year cannot be paid until at least 6 April 2017, but how do I physically make the payment?

gadgetmind

jingleberry wrote: »

I’ve had a look at registering as self-employed and paying class 2 but it seems a bit too complicated for a simple minded soul like me. I can imagine myself filling in a wrong box and lumbering myself with a tax bill!

My wife has always have to do SA anyway, so no big deal adding her few quid of self employed income. Previously we did Class 2 by direct debit, but they have now switched to you paying at tax return time. No risk of a tax bill unless your income exceeds your personal allowance, but I can understand someone wanting to avoid doing SA at the expense of around £600pa extra to go from Class 2 to Class 3.

We've never paid Class 3 so I can't help there. We were hoping to keep on paying Class 2, but it looks like this gravy train stops in a couple of years. We'll have to have a think then.

DaveMcG

Class 2 are being abolished in 2018. Osborne claiming he his reducing tax for the self-employed (while knowing full well he is denying low earning SE a years credit in the state pension).

Regarding voluntary contributions, does anyone know if they have changed the time limit on paying these from 6 years? I can (and should) pay for 3 years 10/11 11/12 and 12/13. The forecast service says I can pay them up until 4/2023 (the last full tax year before my retirement year).

gadgetmind

DaveMcG wrote: »

Osborne claiming he his reducing tax for the self-employed (while knowing full well he is denying low earning SE a years credit in the state pension).

All of this was in the consultation document and along with the ways low paid SE people could make up the gap. While Class 3 and Class 4 were mentioned, the main method was benefits where top ups will take people up to the same level anyway.

Muddled_Pensioner

THIS IS A REPLY TO #70 From CampingCathy (Nov 2015)
My understanding is that 35 years is the amount of years required to achieve a full New State Pension. The fact that you have 38 years means that you have already exceeded it and any further years of National Insurance paid will have no effect on your final amount. If you had let's say 32 years of Full NI to date and were estimated to get at SPension of £123per week, then by working until your SPA will allow you to increase your pension by around £4.60 per week for each additional year worked.
So working for a further 3 years to take you to 35 years NI contribution should increase your pension from £123/wk to £136.35 approx/wk (i.e. 3 x £4.45 added to what you had already) If you haven't reached SPA by the time you have accrued 35 years of contributions then you have to continue paying NI even though it won't increase your weekly amount until you eventually reach SPA.

p00hsticks

Muddled_Pensioner wrote: »

THIS IS A REPLY TO #70 From CampingCathy (Nov 2015)
My understanding is that 35 years is the amount of years required to achieve a full New State Pension. The fact that you have 38 years means that you have already exceeded it and any further years of National Insurance paid will have no effect on your final amount.

But as Cathy says she's been contracted out for at least some of her working life, it's not as straight forward as that. For those contracted out, under the new rules there is a deduction made, so it's possible for someone to have 35 NI years but still not get the maximum nSP amount - in which case additional NI years earned / paid for from 2016-17 onwards will increase your weekly pension up to the maximum.