NIC's in SPA year?

AlanP_2

My OH is 4th April (although she has already hit her 35 years for full SP) and her brother is 5th April a couple of years later - matrimonial activities were obviously run to a rigorous schedule.

I can remember my FiL saying dates were ideal in terms of tax benefit to him at the time.

pensionpuzzler

Well its the case though that if you were PAYE and you earned over the minimum threshold for whatever months were worked in the SPA year then that year would count towards the pension?

So the late birthdate is only a consequence if either paying voluntary NIC's and not being able to get 52 in or, if self-employed (or employed) and not making the threshold £7000 (dont know what the exact figure is).

My missus was working self employed and thus added years. However, she has effectively wound up the self employment for the last few years but kept it 'open' so that she has the cheaper Class 2 contributions. If indeed she made income over the minimum threshold then that year would count as a pension year. That's if my understanding is correct.

DairyQueen

pensionpuzzler wrote: »

Well its the case though that if you were PAYE and you earned over the minimum threshold for whatever months were worked in the SPA year then that year would count towards the pension?.

NI paid in the year that you qualify for SP doesn't count regardless of the type of employment.

Someone on PAYE who retires in any tax year before they reach SPA could pay sufficient NI in only weeks/months (if they were a high earner) for that year to qualify. However, if the same amount of NI was paid over the same shortish period of their SPa year it wouldn't qualify.

Snakey

I'm a late March baby and on my NI contribution record I have a credit for the year in which I turned sixteen i.e. for my last year at school. The girl who sat next to me, who was born in June, wouldn't have done.

I've no idea whether it still "evens out over time" now that the rules have changed between here and there, but presumably the original reasoning behind it was that it would do. Or at least be simpler than everyone having to do fractions!

LHW99

If you don't need her SP to live on in the year she reaches SPa, she could defer for a year, which would increase what's payable by ~5.8%. The ability to inherit state pension from a spouse is reducing after the 2016 reforms, so its worth evaluating your individual situations, as well as joint position.

pensionpuzzler

Right. So the year in which SPA is reached cannot be counted no matter what. Got it.

In terms of deferring, I'm not sure its worth it at 5.8%. She is in good health so that would be a reason to do it. However, the length of time it takes to reach the break-even point is too long for it to be really viable. After deducting tax on the accumulated pension from deferment, it would take in the region of 20 years to get the money back - ignoring inflation etc.

badmemory

But then what savings account will get you 5.8% although I agree it isn't so much of a no brainer as 10.4% was. A lot of it depends on how much other taxable income you have.

pensionpuzzler

Yes but if I put £8000 into a savings account I will get the full amount back plus whatever interest it has gained. If I die, my heirs will get the money.

For those remaining under the Basic Tax threshold it might be a little more favourable to defer as the time to break-even will be reached sooner.

However, whatever way you look at it, I think it's not a good option. It takes too long to get to break-even and if I die during the period of deferment then I've lost what I would have had. So if I deferred for two years and died one year and eleven months after SPA then I've lost virtually all that. I think my relatives might be able to claim three months worth of pension but that would still be 20 months loss.

DairyQueen

You got it!

It's all about longevity. If you live to a grand, old (frail) age then you will be quids-in by deferring. If, on the other hand, you don't, then you have deferred and lost. Deferring is a gamble. For some it's a bigger gamble than for others - depends on your tax position amongst other factors.

And, yes, doesn't matter on your type of employment, NI contributions paid in the year in the tax year in which you reach SPa doesn't count toward your SP.