Reduced NI contributions whilst working overseas – DB pension

Lawrence631

I was in a contracted-out final salary pension scheme from 1984 to 2001.
One tax year (1993-94) I worked abroad but continued to pay income tax and full company pension contributions (6% of scheme earnings) through PAYE, but subsequently claimed an income tax refund from HMRC.
On reviewing my pension statement (provided when I left the company, but only reviewed in detail recently) I have discovered that my contracted out earnings for 1993-04 were approximately 50% of what they were compared with the previous and subsequent tax years, with no significant change in salary. Similarly the government web site confirms that my national insurance contributions for 1993-04 were approximately 50% of what they were compared with the previous and subsequent tax years.
I estimate that the “reduced” national insurance contributions for 1993-94 has reduced my GMP pension at retirement age by approximately £200 / year.
My question:
Did the rules permit reduced contracted out national insurance contributions to be paid whilst employees were working overseas for one year, whilst continuing to pay full company pension contributions (6% of scheme earnings)?

jamesd

It seems most likely that:
1. your UK record is correct and
2. you were UK tax resident and liable to UK tax and NI and UK NI related accrual for part of a tax year and
3. you were non-UK tax resident and liable to foreign tax and related accrual for part of a tax year. I've no information on whether the firm or you made the necessary non-UK declarations, income tax and social security payments.

The UK records seems likely to be correct so far as UK things go.

The company may not have deducted NI at any rate for the time you were abroad and presumably not subject to UK tax and social security charges for at least part of a year. And with no UK NI liability comes no accrual of related benefits since the company wasn't saving the NI that could be paid to the pension scheme to pay for them.

Your UK tax refund claim may give more information on how long you thought you were out of the UK and not subject to UK income tax, NI and NI related benefit accrual. Pro-rating might then let you check whether 50% - implying half a year - was outside the UK system.

You should also check your state pension statement to see whether that year "is full", meaning that it counts towards your basic state pension accrual prior to 6 April 2016. Single tier (new) accrual is possible but unlikely to be used for years before 2016 if you were contracted out a lot.

drumtochty

It appears you got a tax rebate as you earned less as a UK taxpayer that particular year, therefore the NI contribution was lower. Not an issue with the logic there.


It matters not about the scheme rules the NI can only be paid on what was earned.


Like other larger company schemes with employees working oversees, they make an attempt to carry on the pension benifit as if you were working in the UK.


Therefore for the time you were overseas the scheme rules cannot change what the GMP is, this is a function of government regulation.

xylophone

https://www.gov.uk/guidance/how-to-calculate-your-scheme-members-guaranteed-minimum-pension

Lawrence631

Thanks to all.
If I recall correctly I claimed my income tax back for the full tax year, so with hindsight maybe I should be thankful for any NI contributions paid that year.
I have checked my pension forecast on the government website and it confirms that I was contracted out and documents COPE of £45.14 / week and that I have full NI years from 1984 to 2001. My current GMP pension is £3307 with nine more years to go at 6.25% revaluation.
Note the limited payslips I have pre April 1997 document two NI payments: NI basic (a few pounds a month) and NI contracted out. I assume my NI basic payments are responsible for my full NI years for my state pension?
It was a bit of a challenge but I finally managed to follow the government web site GMP calculation and verify my GMP within a few pence.
Note the government website currently documents for working outside EEA:
“You’ll carry on paying National Insurance for the first 52 weeks you’re abroad if you’re working for an employer outside the EEA, Switzerland and bilateral Social Security agreement countries, and you meet the following 3 conditions:
• your employer has a place of business in the UK
• you’re ordinarily resident in the UK
• you were living in the UK immediately before starting work abroad”

It would be interesting to know what the equivalent rules were back in 1993/94.
Shouldn’t the company I was working for have been obligated to advise me that they were going to reduce my NI contributions and give me the option to continue paying full contracted out NI rates so as not to adversely affect my GMP, or is it employee be aware?

Dox

Lawrence631 wrote: »

Shouldn’t the company I was working for have been obligated to advise me that they were going to reduce my NI contributions and give me the option to continue paying full contracted out NI rates so as not to adversely affect my GMP, or is it employee be aware?

I don't think any employee would have understood such technical jargon, especially so long ago when pensions were a closed book to most people (including employers) - and the likelihood that you would have happily paid extra (even if scheme rules and legislation permitted it) isn't exactly high.

Even so, there is nothing to stop you querying the matter now with your former employer/scheme. Have you done that? HR records are likely to be long gone, but the pension side of things is a different matter.

Lawrence631

Thanks Dox, I did question it with the scheme, but received, what appeared to me a very glib response; sorry we only have records going back 7 years. I have subsequently submitted a GDPR subject data request to both the scheme and employer, which hopefully may elicit a more helpful response / information.