State pension and early retirement

Capt_Slog

Hi,

I've looked through the various websites about this but haven't found a definitive answer, so I'm asking here.

I know that to qualify for Full State Pension, I have to have 35 years or more of contributions.

I'm approaching 60 and I'm in the happy position of thinking about retiring on my workplace pension, and I have 44 years of full contributions according to my record at the HMRC website. According to my logic, that should entitle me to the full pension amount when I reach 66.

But some parts of the HMRC website suggest that I won't get the full pension unless I carry on working (and paying NI) to the age of 66 regardless of the qualifying number of years I have.

Can anybody shed any light on this please?

Linton

If you have spent a significant number of years contracted out of NI, perhaps as a member of a DB pension scheme there could be a substantial deduction. The first thing you should do is to get a pension forecast: https://www.gov.uk/check-state-pension. This will tell you whether you have qualified for a full pension and if not, how many extra NI years are required.


You, do not have to work until SP age to qualify for a full state pension.

Chickereeeee

Are you, or have you at any time, been 'contracted out' in your company pension scheme?


Being a member of many company final salary schemes meant you contracted out of 'state pension contributions' for those years.

Silvertabby

Capt_Slog wrote: »

Hi,

I've looked through the various websites about this but haven't found a definitive answer, so I'm asking here.

I know that to qualify for Full State Pension, I have to have 35 years or more of contributions.

I'm approaching 60 and I'm in the happy position of thinking about retiring on my workplace pension, and I have 44 years of full contributions according to my record at the HMRC website. According to my logic, that should entitle me to the full pension amount when I reach 66.

But some parts of the HMRC website suggest that I won't get the full pension unless I carry on working (and paying NI) to the age of 66 regardless of the qualifying number of years I have.

Can anybody shed any light on this please?

For some reason best known to themselves, HMRC insist on recording NI as 'full years' when in actual fact they only mean 'full financial years' and not 'full non-contracted out years'.

It's a fair bet that the occupational pension you are about to retire early on was contracted out. meaning that both you and your employer paid reduced rates of National Insurance. In return, your employer is required to pay you the amount of SERPS/SP2 that you would have received (on top of your basic State pension) as part of your occupational pension.

As part of the new single tier State pension transitional period protections you will receive the higher of your entitlement under either the old or new schemes. It sounds that, like me, you will receive your State pension under the old rules - but with the benefit of being able to increase that amount up to the maximum £164 per week by either working/paying NI from 2016 until the full year before SPA or by paying voluntary class 3 NI contributions.

I, too, retired at 60 but won't receive the full single tier rate unless I pay post 2016 voluntary Class 3 NI (which I will, as it's such a good deal) - but the way I look at it is that I am already receiving the difference between my forecast State pension and the full £164 per week with my occupational pension.

xylophone

It would appear that you have been "contracted out" for much of your working life.

At 6.4.16, two calculations were done

NI years/30 x £119.30) + ( Additional State Pension - Deduction for Contracting Out).


(NI years/35 x £155.65) - Contracted Out Pension Equivalent.

Your "starting amount" was the higher of the two.

In your circumstances it is likely that the first calculation gave the higher amount.

If your "starting amount" was under the amount of the new state pension you could increase it by contributions or credits up to State Pension Age.

See

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/447195/new-state-pension--effect-of-being-contracted-out.pdf

https://www.royallondon.com/global/documents/goodwithyourmoney/topping-up-your-state-pension-guide.pdf

BRIEFING PAPER
Number CBP-07414, 30 August 2016
The new State Pension – transitional issues

Capt_Slog

Thanks for the answers people.

Yes, it appears I have been contracted out. I thought this was the case for an early employment, I didn't realise it was still happening recently.

I also didn't understand the HMRC website's definition of "full years".

Looking at my pension forecast, I see two figures...
Based on my NI to April 2018 = £143
Based on working to 2024 = £164

So £21 a week difference.

I'll have to work out whether its worth paying the Voluntary Class3 contribution (£13 a week?, for the next 5-6 years), at first sight it doesn't feel like it is.

Silvertabby

Capt_Slog wrote: »

Thanks for the answers people.

Yes, it appears I have been contracted out. I thought this was the case for an early employment, I didn't realise it was still happening recently.

I also didn't understand the HMRC website's definition of "full years".

Looking at my pension forecast, I see two figures...
Based on my NI to April 2018 = £143
Based on working to 2024 = £164

So £21 a week difference.

I'll have to work out whether its worth paying the Voluntary Class3 contribution (£13 a week?, for the next 5-6 years), at first sight it doesn't feel like it is.

I'm going to pay mine as lump sums rather than faff about paying weekly. In round figures, that's £750 for each extra year/£4.50 per week State pension. However, as I'm a basic rate taxpayer, that's more like £3.60 per week. £750 / £3.60 = break even in 208 weeks (4 years). After that, it's 'free' money.

Linton

Capt_Slog wrote: »

Thanks for the answers people.

Yes, it appears I have been contracted out. I thought this was the case for an early employment, I didn't realise it was still happening recently.

I also didn't understand the HMRC website's definition of "full years".

Looking at my pension forecast, I see two figures...
Based on my NI to April 2018 = £143
Based on working to 2024 = £164

So £21 a week difference.

I'll have to work out whether its worth paying the Voluntary Class3 contribution (£13 a week?, for the next 5-6 years), at first sight it doesn't feel like it is.

Not worth it? For £13/week for 5-6 years you will get £21/week for the rest of your life. That means that it will pay for itself after 3-4 years of retirement or so.

Tom99

[FONT=Verdana, sans-serif]Depending on the exact figure you need 4 or 5 yrs NI on top of April 2018.[/FONT]
[FONT=Verdana, sans-serif]For each year you pay you get and extra £4.70 per week so paying 4 years will add £18.78 per week and 5 yrs £23.48 but capped at a max of £164.35 per week so you won't get the full value for paying the 5th yr.[/FONT]
[FONT=Verdana, sans-serif]Have you been paying any NI so far in 2018/2019? If so it should be cheaper to make that year up to a full year if you are short.[/FONT]
[FONT=Verdana, sans-serif]Providing you intend to live until at least age 70 its incredibly good value, you will not find any other investment to come close[/FONT]

xylophone

£21 x 52 = £1092 per annum. (And that is at today's rate).

The NSP increases each year by (at the moment) the highest of 2.5% or
September CPI or earnings.

You can save and pay the previous six years in a lump sum as here

https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions

Capt_Slog

Linton wrote: »

Not worth it? For £13/week for 5-6 years you will get £21/week for the rest of your life. That means that it will pay for itself after 3-4 years of retirement or so.

Perhaps I know something you don't?

xylophone wrote: »

£21 x 52 = £1092 per annum. (And that is at today's rate).

The NSP increases each year by (at the moment) the highest of 2.5% or
September CPI or earnings.

You can save and pay the previous six years in a lump sum as here

https://www.gov.uk/voluntary-national-insurance-contributions/who-can-pay-voluntary-contributions

Thanks, can you tell me where the £21 comes from. It says £14.65 for 2018/19 if you follow the Class 3 link.

Sorry, ignore that, I was being dim. I thought you meant £21 was the rate you had to pay, (and they were my numbers! )