"Missing" N.I. contributions

NorthernJoe

Not anywhere near retirement age (sadly) so not often on this board. I have looked for the answer to this but can't seem to find it. Apologies if this has been asked before

It's regarding my mother's state pension. She retired through ill health in 2013 having worked in NHS for 37 years & so has 37 years of N.I. contributions. She will reach state pension age in 2026. 

Upon checking her projected state pension online it states

"You need to continue to contribute National Insurance to reach your forecast. Estimate based on your National Insurance record up to 5 April 2020 £162.29 a week. Forecast if you contribute another 3 years before 5 April 2026 £175.20 a week" 

Can anyone explain? I had thought she had "full" contributions (>35 years) or does she need to make additional voluntary contributions to get the top rate of £175.20 a week?

xylophone

She retired through ill health in 2013 having worked in NHS for 37 years & so has 37 years of N.I. contributions. She will reach state pension age in 2026. 

The NHS was a Contracted Out scheme.

At 6/4/16, (start of New State Pension) two calculations were done.

£119.30 (Full Basic because she had at least 30 years) + (Additional State Pension - Deduction for Contracting Out)

£155.65 (Full NSP because she had at least 35 years) - Contracted Out Pension Equivalent (or "rebate derived amount").

Your mother's "starting amount" ("foundation amount") was the higher of the two (and was almost certainly given by the old rules calculation).

She had not yet reached State Pension Age and so could improve her state pension up to (but not beyond) a full new state pension.

In this case this would require her to make post 6.4.16 contributions for the requisite number of years.

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

https://www.gov.uk/voluntary-national-insurance-contributions

Dazed_and_C0nfused

She is a winner under the new system, able to get a much bigger pension despite paying less NIC for many years.

An extra two years (cost c£1,600) will add £10/week to her State Pension so recoupled in 4 years assuming basic rate tax will be due on her State Pension.  All profit thereafter.

The third year is less clear cut as that will only add the remaining £2.90/week but if she can afford to pay for this year she will be in profit after about 7-8 years.

jamesd

To add a bit to that, before the 2016 changes there was nothing she could do to increase her state pension because she was already as high as she could get under the old rules.

The 2016 changes gave her a new option to add years from 2016 on to get to the higher single tier amount.

This isn't normally available to those who weren't contracted out because the earnings-related part of the state pension usually takes them over the limit already. It's a cheap to buy extra benefit for those who spent most of their working life in contracted out pension schemes.

In the statements a year is called full if it counts towards the basic state pension. This says nothing about the earnings- related part and whether someone was contracted in to or out of that.

If her health is OK it's probably a good idea to exploit her new opportunity.

NorthernJoe

Thanks everyone - hadn't appreciated the changes at the time! 

Will make plans to pay the extra with all the provisos around life expectancy etc