Voluntary Class 3. Fine Detail Questions

Secret2ndAccount

Asking for a friend. They paid 30 yrs NI, but that was a long time ago. They have paid no NI for more than 10 years. Not on benefits; not caring for children; really, no NI.
Pension forecast says currently £139.94/wk    with a maximum of £179.60
I make that 8 years of NI to make up, but they hit SPA in 2.4 yrs.
Seems to me they need to make at least 1 yrs Voluntary Class 3 pretty soon before the opportunity goes away. So here's the first question:
If someone pays a voluntary Class 3 payment today, for the oldest year they can, is that a pre-2016 or post-2016 year?
Question 2. Based on the above data, can you tell if there would be any increase in pension from paying a pre-2016 year?
Am I making sense? Thanks.

jamesd

Phone and ask.

If they didn't do much work in a contracted out personal pension scheme the years before 2016 can be worth having under the new rules calculation. Under old rules that those with lots of contracted out defined benefit pension years more than 30 pre-2016 is seldom of benefit. At the fuzzy edge are those where more pre-2016 years cause new rules to be better than old rules, switching the foundation amount from old to new and producing an improvement.

£139.94 is very low for a person with lots of earnings-related NI contributions so I suspect that they were contracted out most of the time, or in extremely low paying work. That's because 30 years definitely qualifies them for the maximum basic state pension and that's £137.60 and they have only managed a couple of Pounds above this from earnings-related NI. Which means that I have to suspect that old rules will be used and it might not be possible or might take too many years to get new rules to be better due to the new rules COPE.

Easy bit first, it's impossible for years 2016-17 and later to be problematic in this case unless pre-2016 are also bought so those do work. So at least 8 years (assuming birthdays work for that) of 2016 and later are doable and beneficial, except maybe the last delivering too little extra to be worth doing.

Because of the vagaries of work history it's best to phone and ask and get a definitive answer on the cheapest way to get to the maximum and how much the final year increase is in case it's too small to be worth having.

If:
"You’re a man born after 5 April 1951 or a woman born after 5 April 1953

You have until 5 April 2023 to pay voluntary contributions to make up for gaps between April 2006 and April 2016."

So it seems that it is potentially possible to get to the maximum single tier £179.60 as the forecast says and many pre-2016 years are going to be available.

We can't reliably work out whether pre-2016 will be beneficial or a cheaper deal than 2016 or later so phoning to check is the way to go.

molerat

5 April 2023 is the cut off date for all years from 06-07 to 16-17 so no need to  panic just yet.

At the moment the best year to buy, unless any others are part filled, is 19-20 as that will be the cheapest followed by 20-21.

There is not enough information in the op to figure out which way to go.  The numbers do not seem to work for an old system calculation - with 30 pre 2016 years there are not enough post 2016 years available to make up to the full pension - so it could likely be a new system calculation with a COPE of £12.10.

xylophone

https://www.dpf.org.uk/explorer/files/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf

Have a look at the above which was published to coincide with the introduction of the new state pension.

 From the information you gave in your first post, it seems likely that your friend had 30 years NI at 6/4/16.

Therefore the calculations for "starting amount" would have been the higher of

Old Rules

30/30 x £119.30 (Full Basic) + (Additional State Pension - (if applicable) Deduction for Contracting Out.

New Rules

£133.31  (which is 30/35 of Full NSP of £155.65) - (if applicable) Contracted Out Pension Equivalent).

Is there a COPE shown on the friend's forecast?

Secret2ndAccount

There was a COPE, but unfortunately, they don't remember what it was. I know they had a low paid job, and were only contracted out for maybe 5 yrs, so I'm thinking the COPE was very small. They were working before 1978, so likely had some ASP.  So it looks like they were under old rules. Therefore adding more pre-2016 years isn't going to help.
They hit SPA in 2023, so I can only see 2016-2022 as years they can add. I think they will be just short of full SP if they pay all the Class 3 they can. Only missing the final partial year of top up, though that would still have been > £3/wk
Thanks

molerat

Finding that COPE amount is very important.  The SP forecast states they can make up to the full amount, that is impossible to do with only post 2016 years as there is only a maximum of 7 available with a birthday post April 2023 so it looks like they are on the new calculation which means pre 2016 years will be viable.  The forecast will show 3 amounts - the top line figure going forward, the current amount and the maximum achievable adding earlier years.  Full details from the forecast are needed to give a fine detail answer.

xylophone

The friend can apply for an up to date forecast.

https://www.gov.uk/check-state-pension

You might refer the friend to link in my previous.

jamesd

Secret2ndAccount said:

There was a COPE, but unfortunately, they don't remember what it was. I know they had a low paid job, and were only contracted out for maybe 5 yrs, so I'm thinking the COPE was very small. They were working before 1978, so likely had some ASP.  So it looks like they were under old rules. Therefore adding more pre-2016 years isn't going to help

Actually that fits into the case where pre-2016 might be better: a very low contracted out deduction because they weren't contracted out much. But it's too finely balanced to know without phoning to be certain.

BTW the difference in basic state pension is I used today's value assuming a recent forecast and xylophone used I think 2016 assuming an older one. Either could be right since I don't think you said when the forecast was produced. Doesn't change what to do anyway.

jamesd

xylophone said:

Old Rules

30/30 x £119.30 (Full Basic) + (Additional State Pension - (if applicable) Deduction for Contracting Out.

How can there be a deduction for contracting out under old rules, which have just accrual based on years plus accrual based on earnings?

xylophone

How can there be a deduction for contracting out under old rules, which have just accrual based on years plus accrual based on earnings?

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

xylophone

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/204604/single-tier-pension-transition-technical-note.pdf

might also be of interest - it was published before the decision to introduce the NSP a year earlier than anticipated which explains the 2017 date mentioned.