Questions on additional NI contributions to make up a 5 year shortfall

TennisFan

 Hello,
 It's proving difficult to make contact with the Future Pensions Centre at the moment (not surprising really given the current Covid situation), but as I'm due to start my state pension in April this year, there are a few things I need to check - it was suggested that the combined knowledge of the this wonderful forum contributors could possibly check my logic.? 

 In summary, I have reviewed my state pension statement and National Insurance record  :

•  My NI record indicates I have "39 years of full contributions and 9 years when I did not contribute enough”  ( there will be no contributions in the current tax year).
   I know that to be eligible for the full state pension, I need 35 full years of NI contributions and so I conclude I have a shortfall of 5 years. Fortunately, I have some spare funds and can make up the shortfall. 
  Can  I can pick any years from which  to make up the shortfall?, if so these would be  2015/16 (£336.60), 2016/17 (£795.60), 2017/18 (£795.60) , 2018/19 (£761.80), 2019/20 (£780.00). I’ve calculated that the payback on these extra contributions comes after about 3 years, so it seems worth doing….. does that make sense?
• Am I correct in thinking it’ll be additional Class 3 voluntary contributions that I will need to make?
• Should I pay the extra contributions now or wait until nearer April?
• Should I pay the extra contributions now and make sure they are reflected in my State Pension forecast before actually applying for my pension?
• The payback on deferring my state pension seems very long and so is not something I’m interested in doing, but are there any other considerations/things you’d recommend I look at? 

Many Thanks

nigelbb

What does your pension forecast say? https://www.gov.uk/check-state-pension There will be two figures. Firstly what you will get without any more contributions & then the maximum that you could get. Come back with these answers & we can advise you better.

Dazed_and_C0nfused

 I know that to be eligible for the full state pension, I need 35 full years of NI contributions and so I conclude I have a shortfall of 5 years. 

Those rules don't apply to you, you are under transitional rules and the most important thing you need to do is check your State Pension forecast on gov.uk, ensuring you read the whole thing not just the likely headline of £175.20.

You may need 5 years but it would be a coincidence.

Post details of the forecast and you will get some more help on here.

molerat

I am afraid you are looking at it wrongly and completely misunderstanding how the pension works.

What is your current amount stated as "up to April 2020" ?  Take that away from £175.20 then divide the answer by 5 which will give the number of years you need.  With 39 years and less than the full amount points to you being contracted out at some time with a COPE amount - which will be stated on the forecast - and means purchasing any years prior to 2016 will not add to your pension. The pension forecast also states exactly what the maximum amounts you can achieve both going forwards - if your birthday is after April 6th - and by buying prior years.

Audaxer

TennisFan said:

My NI record indicates I have "39 years of full contributions and 9 years when I did not contribute enough”  ( there will be no contributions in the current tax year). 

•  I know that to be eligible for the full state pension, I need 35 full years of NI contributions and so I conclude I have a shortfall of 5 years. 
  

If you think you have a shortfall of 5 years, does that mean that you have only 30 full years of contributions rather than 39? However even if you do have 39 years of full contributions, you may still need to contribute more than 5 years shortfall to get the full new State Pension. The 35 years maximum only applies to people starting to contribute from 2016. 

xylophone

In summary, I have reviewed my state pension statement 

   Do you mean your state pension forecast? What exactly  does it say?

https://www.which.co.uk/money/pensions-and-retirement/state-pension/your-state-pension-forecast-explained-a24r12y9jt41

TennisFan

nigelbb said:

What does your pension forecast say? https://www.gov.uk/check-state-pension There will be two figures. Firstly what you will get without any more contributions & then the maximum that you could get. Come back with these answers & we can advise you better.

Sorry - I obviously missed out providing some key data !! ...
State pension forecast says - 

• Estimate based on no further contributions : £152.50 per week
• The most I can increase the forecast to is : £175.20 per week

 

Dazed_and_C0nfused

Purchasing 4 years will add £20, taking you to £172.50.

A fifth year will add another £2.70.

The return is pretty good, particularly for the first 4 years, as even if you have to pay c£4k you will be getting £1,180/year pre tax so would recoup your money within 4 years.

You don't say when in April your State Pension starts so it may be you can pay 5 post 2026 years which will add to your forecast.

The single pre 2016 year is much cheaper but not guaranteed to add to your forecast.  You need to speak to the Future Pension Centre to be 100% certain this is worthwhile buying.  Although no doubt some knowledgeable poster will comment in due course.

TennisFan

molerat said:

I am afraid you are looking at it wrongly and completely misunderstanding how the pension works.

What is your current amount stated as "up to April 2020" ?  Take that away from £175.20 then divide the answer by 5 which will give the number of years you need.  With 39 years and less than the full amount points to you being contracted out at some time with a COPE amount - which will be stated on the forecast - and means purchasing any years prior to 2016 will not add to your pension. The pension forecast also states exactly what the maximum amounts you can achieve both going forwards - if your birthday is after April 6th - and by buying prior years.

The State Pension summary doesn't have an 'April 2020' figure, but the 'April 2021' figure is £162.51. So, taking that away from £175.20 and dividing by 5 gives 4.54 years needed.
Yes, I was contracted out for a while, hence COPE is a factor. My National Insurance record statement gives me shortfall figures going back several years beyond 2015 - 16  so implies I can add them to my pension calculation.
As 2015 - 16 has only a small shortfall I was hoping to use it in the top up.
By birthday is towards the end of April and my state pension would start this year (just had the letter inviting me to apply for it!). 

Dazed_and_C0nfused

So you can definitely add 5 years (2016:17 to 2020:21), the question is would pre 2016:17 years add to your forecast.

Someone will no doubt post an answer.

molerat

TennisFan said:

molerat said:

I am afraid you are looking at it wrongly and completely misunderstanding how the pension works.

What is your current amount stated as "up to April 2020" ?  Take that away from £175.20 then divide the answer by 5 which will give the number of years you need.  With 39 years and less than the full amount points to you being contracted out at some time with a COPE amount - which will be stated on the forecast - and means purchasing any years prior to 2016 will not add to your pension. The pension forecast also states exactly what the maximum amounts you can achieve both going forwards - if your birthday is after April 6th - and by buying prior years.

The State Pension summary doesn't have an 'April 2020' figure, but the 'April 2021' figure is £162.51. So, taking that away from £175.20 and dividing by 5 gives 4.54 years needed.
Yes, I was contracted out for a while, hence COPE is a factor. My National Insurance record statement gives me shortfall figures going back several years beyond 2015 - 16  so implies I can add them to my pension calculation.
As 2015 - 16 has only a small shortfall I was hoping to use it in the top up.
By birthday is towards the end of April and my state pension would start this year (just had the letter inviting me to apply for it!). 

Some confusion here.  Is your statement on line or a paper one ?

The on line statement should give 3 figures

Amount estimated at retirement date using current amount held plus any available years going forward

Current amount held at April 2020

Maximum amount you can achieve, a "you can improve your forecast" statement, using both forward and back years.

As you have not contributed since 2016 and you have in excess of 35 pre 2016 years you cannot improve the forecast using pre 2016 years.  All additional years purchased must come from post 2016.