Salary Sacrifice for pension NI benefits

[Deleted User]

Dear MSE, I am 65 and had to retire early at 60 due to health issues. I had made a total of 39 year NI contributions so expected I would have a full state pension at 66. Not the case. I was in a corporate pension that opted out of SERPS - this helped my corporate pension funds BUT the DWP & HMRC stated this impacted my 39 years of NI and I had not made full contributions so it helped my company pension but impacted my state pension by reducing it when I get it at 66. Also in the 1970’s my accident caused the local Job Shop to say I could not continue with my then career and they said I had to attend the local adult education retraining process. I eas 21 so I did 3 years retraining in IT. This was classed as 3.5 years of no NI contributions so those are missing years further my state pension. Finally HMRC state retirement at 60 means no NI and I could pay that to help. However if I pay 6 years of NI and then die at 67 or 68 I have paid cash to HMRC for NI that my wife does not benefit from my additional NI contributions. Better to save the NI payments for the 6 years and invest it or at least ensure that the £4320 I’d my wife’s. The extra NI contributions only increases my weekly state pension by about £20 a week. To break even I will need to survive until I am 70 other HMRC are the beneficiaries of my NI payments rather than my family. My advice is beware as this area is an absolute minefield. I tried claiming non contributory NI payments for my retraining years but this was refused by DWP. Also I was never told that opting out of SERPS would impact me 35 to 40 years later. Good ideas today are not always good for your future giving our government pension rules change every year. EG “

Rishi Sunak hints at suspension to pension triple lock.

Dazed_and_C0nfused

You are a winner under the new system.

You paid reduced NI whilst contracted out and now have the opportunity to increase your State Pension entitlement by purchasing extra years.

It is a very very difficult investment to beat as paying c£800 can add £266/year to your State Pension.  Which is inflation proofed and paid for as long as you live.  The initial outlay is recouped in about 3 years, or nearly 4 if you will be due to pay tax on your State Pension.

Also, your figures don't make sense.

Paying £4,320 suggests you would be buying 6 years and that would add between £25.66 and £30.78/week, not £20.

If you post your State Pension forecast, in full, then it should be possible to clarify what you will actually get as £20 doesn't seem correct.

molerat

If you honestly think you are not going to survive beyond 70 then likely no point buying missing years.  For the vast majority though it is money well spent, well in profit with normal life expectancy. 

6 years will give you in excess of £30 per week. 

The new pension was good for many in our age group who were contracted out, got the best of both worlds - I am getting over £30 per week more than I would have done under the old scheme having retired at 55.

Getting those early years credited would likely have made no difference to your pension.

The triple lock thing - I suspect it will be tinkered with, with good reason, but it would be political suicide to do away with it.

p00hsticks

 Good ideas today are not always good for your future giving our government pension rules change every year.

As you say you are 65, I'm going to assume you were born in 1956, and from your name I'm taking you as male.

That means that for the majority of your working life - up until 2010 - the 'rules' said that you needed to get 44 years NI to entitle you to a 'full' basic pension - today worth £137.60. So your 39 years would only have entitled you to a basic state pension of (39/44 x 137.60 = ) £121.96, although you would have been able to start claiming it at age 65.

After 2010 - good and bad news! The rules changed so that number of NI years needed for that full basic pension was reduced to 30. But the state pension age was gradually increased. So under those rules you'd have got the full £137.60, although you may have had to wait a bit longer for it (depending on when your actual birthday was).

But 2016 saw the rules change again, with the introduction of the new State Pension, and this was good news all round for people like yourself. The transitional rules guaranteed that as at April 2016, your pension position would be whatever amount was higher - that under the old or new rules.  So the fact that you already had over 30 years - despite the fact that the majority of those were when you were contracted out and so paying a reduced rate of NI - meant that your £137.60 under the old rules was guaranteed. Even better, every year you worked or voluntarily bought after that would increase your weekly state pension by over £5 a year for life, up until the new maximum of £179.60 a week.  As Dazed_and_Confused has pointed out, buying those years voluntarily is incredibly good value for money unless you have a short life expectancy.

So the three major state pension changes made over your working life have all seen you better of that you would have been under the previous rules.