State Pension / National Insurance Contributions

lisboa84

Happy New Year folks.

Apologies for the duplication in topic; I've read some of the other recent threads and several documents online, just a couple of small details I'm unsure of as my circumstances are a bit different.

According to my state pension summary -

-My forecast is £164.35 a week.
-I have 4 years of full contributions.
-Assumes that I’ll contribute another 31 years (to get to 35 years).
-34 years left to contribute before 5 April 2052.
-14 years when I did not contribute enough.

I applied to HMRC to top-up my contributions, and they confirmed that I'm eligible to pay voluntary contributions for 12 out of those missing 14 years (I can buy all the consecutive years of 2006-07 until most recent full year 2017-18).

Time is on my side in regards to accumulating 35 contributions before 2052 but it could be in my best interests if I make a payment before April 2019 (the deadline for when the price quoted from HMRC will expire). I'm abroad so I'm not paying compulsory contributions.

Onto the questions;

1. Are there any differences, in terms of value or worth, of contribution years before 2016 (old pension rules) and after 2016 (new pension rules)?
Or is one full year just the same as any other, no matter the pre or post 2016 changes?

I've read (or perhaps I've misunderstood) posts saying that buying a pre 2016 contribution year may not increase the new state pension value.
I've also read that each post 2016 contribution year is worth an extra £4,70 a week to the pension, but is a pre-2016 year also worth an extra £4,70 a week?
Obviously I don't want to buy a pre-2016 year if that year is going to bring down my quoted £164.35 amount.

2. My pension forecast starting amount seems to have been calculated using my 4 years from the 'old' pension rules, pre-2016, and appears to assume that I'm going to contribute 31 years under the 'new' pension rules which would be 31 years of post-2016 contributions, of which I have until April 2052 to do. So 4 years pre 2016, 31 years post 2016. Fair enough assumption to make I suppose.

But what if I back-pay years for the 10 tax years of 2006-07 to 2015-16, to bring my 'old' pension starting amount up to 14 years, will my pension forecast on the website, using this new starting amount, be any different? Higher, lower, or still £164.35?
And if I then pay a further 21 years under the post 2016 years of the 'new' pension rules, will that make any difference whatsoever to the projected final amount of £164.35?
Or is that price frozen regardless of which combination of 35 years I choose to purchase?

Sorry this turned out to be rather long-winded. Just trying to cover all bases and to not do anything that would jeopardise my entitlement to the new full state pension current highest amount of 164.35.

I was considering calling the future pensions centre but a few people have mentioned that they can't give advice or talk about which years to pay, and this also seems quite complex to talk about on the phone, I much prefer reading and taking information at my own speed.

Dazed_and_confused

Pretty sure that, other than inflation increases, you cannot get more than £164.35. Even if paying pre 2016 years and then contributing all 34 years possible.

Have you looked the Royal London guide which is very comprehensive?

molerat

1. A pre 2016 year can be worth either £3.98 or £4.45, at 2016 rates, depending on whether the new or old calculation is used to determine your 2016 starting amount and purchasing extra pre 2016 years can change which applies. What will not change is the final amount you will receive, which is the maximum available, but the number of years needed to achieve it may.

2. Your starting amount was calculated using the higher of 4 x old rate + S2P or 4 x new rate - COPE. The final amount assumes you currently have 4 years and will contribute all the remaining years post 2018. It does not assume you will purchase any prior years but will give that as a third amount if it can add value, in your case it will not make any difference which side of 2016 you purchase.

If you have less than 30 pre 2016 years then bringing up to that number, if possible, cannot fail to add value. Bringing up to 35 depends on individual circumstances. If there are any part paid years then that could be a worthwhile route but any purchase must be seen as an insurance policy that will only pay out if you live to and beyond state retirement age, if you pop off before then your purchase is worthless.


Does the website give you a current amount accrued and does it show you as having been contracted out with a COPE amount ?

lisboa84

Thank you folks for the swift replies.

Dazed_and_confused wrote: »

Pretty sure that, other than inflation increases, you cannot get more than £164.35. Even if paying pre 2016 years and then contributing all 34 years possible.
Have you looked the Royal London guide which is very comprehensive?

Well, my forecast says £164.35, if I top up with 31 post 2016 years.
But my primary concern is if this £164.35 forecast will reduce if I topped up with 10 pre-2016 years and only 21 post-2016 years instead.

Yes The Royal London guide is a useful pdf.

molerat wrote: »

1. A pre 2016 year can be worth either £3.98 or £4.45, at 2016 rates, depending on whether the new or old calculation is used to determine your 2016 starting amount and purchasing extra pre 2016 years can change which applies. What will not change is the final amount you will receive, which is the maximum available, but the number of years needed to achieve it may.

That's good to know.
That's what I was worried about; accidently lowering my starting amount if I purchase 10 pre-2016 years.

2. Your starting amount was calculated using the higher of 4 x old rate + S2P or 4 x new rate - COPE. The final amount assumes you currently have 4 years and will contribute all the remaining years post 2018. It does not assume you will purchase any prior years but will give that as a third amount if it can add value, in your case it will not make any difference which side of 2016 you purchase.

Thanks, that's what I wanted to know.
So, purchasing 10 pre-2016 years won't lower my starting amount, is that correct? I guess that's my primary concern.

Does the website give you a current amount accrued and does it show you as having been contracted out with a COPE amount ?

Well it just states "You currently have 4 years on your record and you need at least 10 years to get any State Pension." and doesn't show anything about being contracted out. I only entered the NI system in the year 2000.

Linton

Paying pre 2016 years cannot reduce your pension. The worst that can happen is that they dont add anything. But in your case with no COPE and very few years contributions at all there is no chance of that. So you should be fine paying the earliest years you can.

You can get definitive confirmation from the Future Pension Centre. https://www.gov.uk/future-pension-centre

lisboa84

Linton wrote: »

You can get definitive confirmation from the Future Pension Centre.

Thanks. I was considering calling the Future Pension Centre, but I'm a bit weary of speaking to 1 person on the phone which could lead to misunderstanding or miscommunication.
Strange as it may seem, I believe asking an open question on an internet forum in front of many different eyes increases the chances of accuring information and other tidbits, and at least if someone on a forum gives wrong information, someone else will be quick to correct it.

By the way - HMRC say they calculate your pension forecast twice - once using the old system, once using the new system, and then publish on the website whichever amount is higher.
But; how does one know if HMRC have published their pension forecast online using the old or the new method? They don't actually say which calculation they have published.

I plan to have a look at my parents forecasts in the coming days, so I may need to get to grips with the formulas used for calculating both the old and new rules.

molerat

lisboa84 wrote: »

By the way - HMRC say they calculate your pension forecast twice - once using the old system, once using the new system, and then publish on the website whichever amount is higher.
But; how does one know if HMRC have published their pension forecast online using the old or the new method? They don't actually say which calculation they have published.

Take today's figure for current entitlement. Deduct £4.70 for each post 2016 year accrued. Divide that figure by 1.03 and again by 1.025 for inflation correction. That gives you the 2016 starting amount. For the new method you need to multiply the number of pre 2016 years held, up to a maximum of 35, by £4.45 then deduct any COPE amount. Is that close to the first calculated figure ?