Overpaying voluntary class 3 NI contributions?

george278

https://www.thetimes.co.uk/article/beware-of-the-state-pension-top-up-trap-567qw8jzs?shareToken=30f16fd532126ee4e47b715ae10c5227

Anyone seen this article in last Saturday’s Times? It details how some people might be paying unnecessarily to top up their national insurance contributions so as to get a full state pension.

I’m 60 years old and retired early three years ago. I checked my state pension forecast then and it stated that I had paid 37 full years of contributions, but had been contracted out for some of this time. It forecast my state as £20 per week lower than the full pension and told me that I could make voluntary contributions for 5 years to get the maximum amount. This I have done for the last three years and my pension forecast has improved, but I’m still being told that I need to pay another two years contributions to get the maximum amount.

Reading the article in the Times I’m wondering if I really need to have a NI record of 42 years full contributions before I qualify for a full state pension. Indeed, have I paid the voluntary contributions for the last three years by mistake?

Dazed_and_C0nfused

Have you actually been paying for pre April 2016 years?

As you are under transitional rules the actual number of years is pretty irrelevant really.

NottinghamKnight

It's your decision whether to pay voluntary contributions or not, a you were contracted out you saved NI ad have a separate pot or are being paid via  a db scheme. You have been given another opportunity yo buy added pension, this accrues at around £4.50 per year so if you were £20 short then contributing for 4 years seems like a good plan for most, the last year may give a lower return so require further thought or investigation. 

george278

Dazed_and_C0nfused said:

Have you actually been paying for pre April 2016 years?

As you are under transitional rules the actual number of years is pretty irrelevant really.

No, the additional years that I've paid have all been for after April 2016

george278

NottinghamKnight said:

It's your decision whether to pay voluntary contributions or not, a you were contracted out you saved NI ad have a separate pot or are being paid via  a db scheme. You have been given another opportunity yo buy added pension, this accrues at around £4.50 per year so if you were £20 short then contributing for 4 years seems like a good plan for most, the last year may give a lower return so require further thought or investigation. 

Yes, your're right it does seem on the face of it a good deal, that's why I've been paying these additional sums. Its just the article in the Times has led me to think that I've wasted this money! 

xylophone

At 6/4/16, two calculations were done to establish your starting amount for the new state pension. 
Old rules
Full Basic  of £119.30 (because you had at least 30 years) + (Additional State Pension - Deduction for Contracting Out)

New Rules
 Full  NSP of  £155.65 (because you had at least 35 years) - Contracted Out Pension Equivalent.

Your starting amount was the higher of the two.

As you had not yet reached SPA and your starting amount was lower than a full new state pension, you had the opportunity to make post 6/4/16 contributions to improve your position.
In your case this seems to have required you to contribute for five years.

https://www.royallondon.com/contentassets/8c6335d848984476bb2e1edcd8daa045/good-with-your-money-guide-8-new-state-pension-v3-2.pdf

https://www.royallondon.com/siteassets/site-docs/media-centre/good-with-your-money-guides/topping-up-your-state-pension-guide.pdf

Dazed_and_C0nfused

george278 said:

NottinghamKnight said:

It's your decision whether to pay voluntary contributions or not, a you were contracted out you saved NI ad have a separate pot or are being paid via  a db scheme. You have been given another opportunity yo buy added pension, this accrues at around £4.50 per year so if you were £20 short then contributing for 4 years seems like a good plan for most, the last year may give a lower return so require further thought or investigation. 

Yes, your're right it does seem on the face of it a good deal, that's why I've been paying these additional sums. Its just the article in the Times has led me to think that I've wasted this money! 

In light of what you have told us it might be worth re-reading the article with fresh eyes.

molerat

One paragraph in that article covers what it is about

You can check your contribution record on the DWP website — but if its calculator sees any gaps in your record before 2016 it recommends topping them up, even though there may be no need to.

I don't actually believe many of the statements in the article, they are clearly inaccurate and designed to bolster the article. The one quoted above is untrue, it does not "recommend" topping them up it just states you may top them up.

jem16

molerat said:

One paragraph in that article covers what it is about

You can check your contribution record on the DWP website — but if its calculator sees any gaps in your record before 2016 it recommends topping them up, even though there may be no need to.

I don't actually believe many of the statements in the article, they are clearly inaccurate and designed to bolster the article. The one quoted above is untrue, it does not "recommend" topping them up it just states you may top them up.

I agree. The example provided by the teacher shows she has simply understood her forecast and has probably not actually asked anyone at the DWP to explain it. If she pays for years 2016-2022 she will indeed get the £170pw that has been forecasted. She has wrongly assumed she was being asked to pay for years 2014-2020.

All that article has done is give out the wrong impression.

jamesd

george278 said:

have I paid the voluntary contributions for the last three years by mistake?

No, you've acted as you should and have nothing to be concerned about.

There is one thing to check, though: how much increase buying the final year gets you. It could be as little as a penny a week and if it's only a little it won't be worth doing. Hard to know but it looks like £1-2 in your case.

At the lower end, deferring claiming your pension for a while could deliver more income per Pound spent. The increase is 1% per nine weeks, (5.8% a year), minimum nine weeks then pro-rated, and it increases with inflation, not triple lock.

Are you making the £2880 net of pension contributions a year that you're allowed? There's a £180 a year tax gain, more if you have any income tax personal allowance you have left.

george278

Thanks jamesd.
Before I paid the first of the 3 years I was £20 a week off a full pension, now I'm only £7 short. And yes I do make sure that pay the £2880 a year into my SIPP so as to get the tax relief.