📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Checking State Pension and voluntary buying Class 3 years

Options
Hi,
I am checking a SP status for a friend.  While I am far from an expert, my mate knows less than nothing.
In going through his forecast, I have become a bit confused.
The background is that he worked his whole career in the Civil Service and retired in September 2015 at 60.
From what I can tell when the SP changed in April 2016, he would have had a full basic state pension (having worked 40ish years and contracted out for all of that).
So I would have expected his SP forecast to have his "Estimated based on your NI to April 2019" to say £134.24 per week - which I believe is today's value of what was the Full Basic Pension (around £119 at the time of change).  However, the value is £139.38.  Other SP forecasts I have seen say April 2020 rather than April 2019 - but I think that may not be relevant as he didnt work or pay NI in the 19/20 year.
So the first question is - has anyone any thoughts on why this is higher than what I would have expected?

It then goes on to say that the Forecast I they work until April 2021 he will receive £149.39.  Now obviously this wont happen as he isnt working this year.  This is the maximum as he turns 65.
So the second question is that given that it says this is the maximum forecast - can he still pay voluntary Class 3 NI payments for the five years 16/17, 17/18, 18/19, 19/20 & 20/21 to increase this?  But I believe you get around £5 / week for each year bought - totalling £25.  But his current forecast of £139.38 plus £25 gives around £165.  This is still not a Full pension of £175.20.  So have I got my numbers wrong somewhere?  I would have thought that a Full Basic Pension (over 30 years) in April 2016 Plus buying an additional 5 years would give the full current SP?

Any help on this will be gratefully appreciated.


«1

Comments

  • molerat
    molerat Posts: 34,603 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 27 October 2020 at 8:57PM
    There was some additional pension entitlement after 2002 for low to moderate contracted out earners so that may account for the difference. He will benefit from paying class 3 for any available post 2016 years.  There should be 3 amounts on the forecast - the current amount, the amount paying going forward and an amount including filling past years along with a maximum statement. The 2019-20 update does not seem to have been done yet for those not contributing, seems to have been delayed this year.
    There is no logical reasoning for your assumption over him getting the full new pension amount. The final pension is calculated by taking the higher of the old or new scheme amounts earned up until April 2016 then adding anything post 2016.  They are effectively 2 separate pensions added together.  The maximum is just that, a maximum, and he will not have enough post 2016 contributions available to reach that amount but will have benefited by getting precisely what he had earned before retiring plus having the opportunity to add to it post 2016, something that was not available under the old scheme.
    Showing the full figures from the forecast would help with more concise comment.
  • molerat said:
    There was some additional pension entitlement after 2002 for low to moderate contracted out earners so that may account for the difference. He will benefit from paying class 3 for any available post 2016 years.  There should be 3 amounts on the forecast - the current amount, the amount paying going forward and an amount including filling past years along with a maximum statement. The 2019-20 update does not seem to have been done yet for those not contributing, seems to have been delayed this year.
    Thank you for your response.
    I missed a number
    You can get your SP on xx April 2021 - £149.39 
    Estimate based on NI to April 2020 - £139.38
    Forecast if you contribute to April 2021 - £149.39
    The most you can increase your forecast to is £164.41
    I assume the last number assumes additional voluntary payments.  So given that they have a full basic pension.  And they have five years which they can "buy" - why would this not be the full £175.20?  
    I can sort of understand the £164 number - £139 plus buying 5 years of £5 each giving £25 onto of the £139 = £164.  I dont understand why this cant be the £175.

  • molerat
    molerat Posts: 34,603 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 27 October 2020 at 9:08PM
    molerat said:
    There was some additional pension entitlement after 2002 for low to moderate contracted out earners so that may account for the difference. He will benefit from paying class 3 for any available post 2016 years.  There should be 3 amounts on the forecast - the current amount, the amount paying going forward and an amount including filling past years along with a maximum statement. The 2019-20 update does not seem to have been done yet for those not contributing, seems to have been delayed this year.
    Thank you for your response.
    I missed a number
    You can get your SP on xx April 2021 - £149.39 
    Estimate based on NI to April 2020 - £139.38
    Forecast if you contribute to April 2021 - £149.39
    The most you can increase your forecast to is £164.41
    I assume the last number assumes additional voluntary payments.  So given that they have a full basic pension.  And they have five years which they can "buy" - why would this not be the full £175.20?  
    I can sort of understand the £164 number - £139 plus buying 5 years of £5 each giving £25 onto of the £139 = £164.  I dont understand why this cant be the £175.

    I assume you mean to April 2019 or the rest doesn't make sense. Once at the April 2020 state the current and maximum amounts will stay the same but the top line will reduce by £5.
    I have edited my post above with a bit more detail.  The figures look correct. Many don't understand why they don't get the full amount, much fuelled by the tabloid headlines of 35 years when first introduced.

  • How could they get to £175?

    They don't have sufficient time from 2016 to their State Pension age to accrue more than 5 years.

    £139 + £25 (the 5 years) is £164.  The maximum they can achieve.

    I think most people would see them as a winner under the new system, unfortunately with not quite enough time to reach £175.


  • xylophone
    xylophone Posts: 45,622 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Your friend had 40 + years NI at 2015 when he retired in 2015 aged 60.

    Two  calculations were done 6/4/16

    Old rules
    £119.30 (full basic as he had at least 30 years) +  (SERPS / S2P - Deduction for Contracting Out)

    If he was a moderate earner he will probably have accrued some S2P between 2002 and 2015.

    New Rules
    £155.65 (Full NSP for at least 35 years) - Contracted Out Pension Equivalent.

    With a  40 year career in the CSPS his COPE would be high - the old rules calculation would virtually certainly been the higher of the two and would have been his starting amount.

    His starting amount was less than a full new state pension and he had a number of years between 2016 and his SPA.


    He could choose to make voluntary contributions for 16/17 to 2021 inclusive to improve his state pension.

    See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

    but the figures for BSP would be £119.30  and for NSP £155.65.  The Rebate Derived Amount is the COPE.

  • jem16
    jem16 Posts: 19,607 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    molerat said:
    There was some additional pension entitlement after 2002 for low to moderate contracted out earners so that may account for the difference. He will benefit from paying class 3 for any available post 2016 years.  There should be 3 amounts on the forecast - the current amount, the amount paying going forward and an amount including filling past years along with a maximum statement. The 2019-20 update does not seem to have been done yet for those not contributing, seems to have been delayed this year.

    I can sort of understand the £164 number - £139 plus buying 5 years of £5 each giving £25 onto of the £139 = £164.  I dont understand why this cant be the £175.

    As you have worked out, buying five years will increase his pension by £25 and take him to £164. He therefore needs another 2 years (slightly more actually) to get another £10pw to make the full amount. So 7 years needed in total. 

    However as he’s 1955 born and reaching SPA in September 2021 he only has 5 years from 2016 that he can pay for as you don’t pay NI on reaching SPA. 
  • jem16 said:
    molerat said:
    There was some additional pension entitlement after 2002 for low to moderate contracted out earners so that may account for the difference. He will benefit from paying class 3 for any available post 2016 years.  There should be 3 amounts on the forecast - the current amount, the amount paying going forward and an amount including filling past years along with a maximum statement. The 2019-20 update does not seem to have been done yet for those not contributing, seems to have been delayed this year.

    I can sort of understand the £164 number - £139 plus buying 5 years of £5 each giving £25 onto of the £139 = £164.  I dont understand why this cant be the £175.

    As you have worked out, buying five years will increase his pension by £25 and take him to £164. He therefore needs another 2 years (slightly more actually) to get another £10pw to make the full amount. So 7 years needed in total. 

    However as he’s 1955 born and reaching SPA in September 2021 he only has 5 years from 2016 that he can pay for as you don’t pay NI on reaching SPA. 
    Thank you for this.  
    But my (I appreciate potentially simplistic) understanding was that a full SP under the new rules was earned with 30 years contributions up to April 2016 plus 5 years contribution after April 2016.  So this would mean that surely having completed the former, that with buying these five years 2016-2021 - that he should get the full SP.
    I must be missing something in my simplistic understanding?
  • xylophone said:
    Your friend had 40 + years NI at 2015 when he retired in 2015 aged 60.

    Two  calculations were done 6/4/16

    Old rules
    £119.30 (full basic as he had at least 30 years) +  (SERPS / S2P - Deduction for Contracting Out)

    If he was a moderate earner he will probably have accrued some S2P between 2002 and 2015.

    New Rules
    £155.65 (Full NSP for at least 35 years) - Contracted Out Pension Equivalent.

    With a  40 year career in the CSPS his COPE would be high - the old rules calculation would virtually certainly been the higher of the two and would have been his starting amount.

    His starting amount was less than a full new state pension and he had a number of years between 2016 and his SPA.


    He could choose to make voluntary contributions for 16/17 to 2021 inclusive to improve his state pension.

    See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

    but the figures for BSP would be £119.30  and for NSP £155.65.  The Rebate Derived Amount is the COPE.

    xylophone said:
    Your friend had 40 + years NI at 2015 when he retired in 2015 aged 60.

    Two  calculations were done 6/4/16

    Old rules
    £119.30 (full basic as he had at least 30 years) +  (SERPS / S2P - Deduction for Contracting Out)

    If he was a moderate earner he will probably have accrued some S2P between 2002 and 2015.

    New Rules
    £155.65 (Full NSP for at least 35 years) - Contracted Out Pension Equivalent.

    With a  40 year career in the CSPS his COPE would be high - the old rules calculation would virtually certainly been the higher of the two and would have been his starting amount.

    His starting amount was less than a full new state pension and he had a number of years between 2016 and his SPA.


    He could choose to make voluntary contributions for 16/17 to 2021 inclusive to improve his state pension.

    See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

    but the figures for BSP would be £119.30  and for NSP £155.65.  The Rebate Derived Amount is the COPE.

    Thank you for this.  I think I need to take a bit of time to think through this and read the links you have provided.
    But on your point about S2P between 2002 and 2015 - Given they were contracted out, will they still have accrued some S2P?
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 17,617 Forumite
    10,000 Posts Fifth Anniversary Name Dropper
    edited 28 October 2020 at 12:27PM
    That isn't how the transitional rules work.  35 years are irrelevant to anyone under transitional rules.

    You have a starting amount, £139 in your scenario.  And then each post 2016 year adds £5/week (at current tax year rates).

    So if you reach State Pension age in year 6 after 2016 then you can only add £25 (£5 x 5).

    Hence the maximum being £164.
  • xylophone
    xylophone Posts: 45,622 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    But on your point about S2P between 2002 and 2015 - Given they were contracted out, will they still have accrued some S2P?

    Possibly. Figures for 11/12 in this article - would have been up rated in later years. S2P ended with the introduction of NSP.

    https://en.wikipedia.org/wiki/State_Second_Pension

     S2P gives all employees earning up to £32,592 a year (in 2011/12) a larger pension than SERPS, regardless of whether they are "contracted out" or not - with most help going to those in the '"lowest"' earnings (up to £14,400 a year in 2011/12) - known as the "LET" or '"Low Earnings Threshold"'. 

Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 351.1K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.6K Spending & Discounts
  • 244.1K Work, Benefits & Business
  • 599K Mortgages, Homes & Bills
  • 177K Life & Family
  • 257.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.