Just about to retire early - how can I increase state pension to maximum?

markandjayne

Hi
Thanks for looking
Planning to retire early in next few months (age 57) and have sufficient DB and DC and savings to cover my needs. When I log into State pension website, info says I have 36 years of contributions and need to contribute 4 more years to achieve maximum state pension. If I work until end of May 2021, will I receive an additional year (I am well paid so my NI contributions each month are high). How long in the year / how much NI needs to be paid to accrue an extra year?  Is there a way to pay to add other 'missing' years? Thank you

Dazed_and_C0nfused

You will presumably also receive an additional year for the current tax year?  Leaving you potentially with just two years to accrue.

This is worth a read re 2021:22.

https://www.thisismoney.co.uk/money/pensions/article-7873583/How-qualifying-years-state-pension-worked-out.html

The cheapest option is to start a small business, register it with HMRC and complete 2 (or maybe 3) Self Assessment returns and pay voluntary Class 2 National Insurance at c£160/year.

Alternatively you can pay voluntary Class 3 National Insurance at c£800/year.

cfw1994

From UK Gov website: if you’re employed and earning over £183 a week from one employer
So about £9.5k
It does add you may get it from £120 per week
https://www.gov.uk/new-state-pension/your-national-insurance-record-and-your-state-pension

markandjayne

Had forgotten about 2020/21 - so only 3 years to add
That is a useful link thanks. It does not deal with part years - any more insight on part years? If I work for just 2 months in 2021/22 tax year, will I get another year. Like the idea o the small business.

Linton

markandjayne said:

Had forgotten about 2020/21 - so only 3 years to add
That is a useful link thanks. It does not deal with part years - any more insight on part years? If I work for just 2 months in 2021/22 tax year, will I get another year. Like the idea o the small business.

You can get detailed information on exactly what extra contributions you need to make from The Future Pensions Centre see:https://www.gov.uk/future-pension-centre
However, from other posts it seems contact may be difficult at the moment thanks to Covid.

molerat

The article linked to by D&C does give information on part year employment.  You need to have earned 52 x LEL accumulated over periods where earnings are above the LEL then all earnings below the UEL in those periods will count towards that figure and you will be credited with a full year, the article sets out an example.

markandjayne

Thank you. Molerat, D&C, I know I am probably being dim but I still don't get the part year thing. Net pay is c £4k per month. so if I work for 2 months in 2021/22 tax year, will I pay enough to get an additional year of NI contributions. It seems to talk weekly contributions. Sorry for being slow on the uptake!

tacpot12

Yes, if work two months in 2021/22 tax year, it is virtually guaranteed that you will pay enough NI for that year to be a qualifying year (assuming a net pay of £4K per month). For any year to be a qualifying year you need to have paid £748.80 NI in 20/21 and probably £765 NI in 21/22 (NI rates aren't published yet, so this is an estimate). These figures are 52 x the Lower Earnings Limit x the NI rate for Employees (12%) for the tax year. Perhaps not surprisingly, these figures are about the same as the Voluntary Class 3 contributions you will pay to buy the missing years. 

£4K net is c£5660 gross, so you will be paying c£440 per month in NI. So in two months, you will be comfortably over the c£765 that will be needed for that year to be a qualifying year.

 

molerat

The LEL and UEL are given as both weekly and monthly figures.  So, depending on how frequently you are paid, if you earn over £120 per week or £520 per month all amounts up to £920 per week or £4167 per month will be added together to help meet the £6240 needed to make a full year. So on your £4K you will likely meet that requirement in 2 months as you are earning enough in those months to be equivalent to the minimum £120 per week for 52 weeks.  How much NI you pay is of no relevance, it is how much you earn over what period that counts.

zagfles

j.p said:

The fact that you're well-paid and your deductions for NI contributions are high doesn't mean you can accrue them faster than those who earn less, working fewer weeks. That excess you're paying for the weeks you're working can't buy you anything extra or stand for other weeks or months; it's just excess. It pays extra into the state's coffers so that other people (or society) can benefit from it; it doesn't benefit you individually.

This is rubbish. Read the article linked above

zagfles

tacpot12 said:

Yes, if work two months in 2021/22 tax year, it is virtually guaranteed that you will pay enough NI for that year to be a qualifying year (assuming a net pay of £4K per month). For any year to be a qualifying year you need to have paid £748.80 NI in 20/21 and probably £765 NI in 21/22 (NI rates aren't published yet, so this is an estimate). These figures are 52 x the Lower Earnings Limit x the NI rate for Employees (12%) for the tax year. Perhaps not surprisingly, these figures are about the same as the Voluntary Class 3 contributions you will pay to buy the missing years. 

£4K net is c£5660 gross, so you will be paying c£440 per month in NI. So in two months, you will be comfortably over the c£765 that will be needed for that year to be a qualifying year.

It's nothing whatsoever to do with how much NI you paid. Some people get a qualifying year without paying anything.