Guide discussion: Voluntary national insurance contributions

p00hsticks

macman said:

I was self employed in tax year 2015/16 but did not pay Class 2 NI contributions because I was below the earnings threshold. Can I still purchase these, or does the 6 year backdating rule now mean that year is unavailable to me?
I paid for 3 subsequent missing years (2016/17, 2017/18, and 2018/19) last year, but at that time was told that I could not go back as far as 2015/16, so have the rules been changed?

Who was it that told you this ?

Until next April you can buy voluntary years back to 2006, but I don't know if there are stricter limits on whether you can buy them back that far at the self employed rates.

Another explanation could be that, rather than being told that you couldn't buy them, it was actually suggested that it may be of no benefit to you to buy them. Filling in gaps prior to the introduction of the new State Pension in 2016 may or may not have any impact on the amount of state pension you'll get, depending on your personal record. If you post all the details from your state pension forecast (how much you are projected to get, whether you still need to contribute to get that and if so how many years, if the forecast indicates you have gaps you can fill, how many NI years you both have now and had by April 2016, and whether any COPE value is shown and if so how much) then people on this board should be able to say if this is the case. 

DrVenn

First of all can I say in my first post how impressed I am by the knowledge and helpfulness of many people on this forum. When I see that some people have made thousands of posts I am amazed at their generosity with their time. 

I have done my best to read all 22 pages of this thread which has given me a much greater understanding of my position. But there are a couple of points I would welcome comment on. I started receiving my state pension in October 2022 (I was 66 in late September). I sought forecasts in 2017 and 2018, but as I was in intermittent part time work it was tricky to know in advance whether I would pay sufficient class 3 contributions to get a qualifying year. As it happens I did pay sufficient in three years from 2016, none in two years and in one year enough to be able to top it up to qualify by paying £63.40 (which I did). As a result my pension became £179.08 per week. 

Having done more research last Autumn I asked for another letter from the Future Pensions centre about whether I would benefit by paying a Voluntary Contribution for 2021/22 and or 2020/21. 

The answer was yes paying for one year (the cheaper one obviously) got me another £5.29 a week - so I have done that. But paying for a second one would only get me another 78p per week - taking me to the maximum of £185.15. Obviously not worth the investment. I saw one case in this thread where someone would only have got an extra 11p a week. What I am puzzled about is how that happens. How has my "base figure" been generated so that there is a limit to the number of £5.29s I can add? Is it that qualifying years are not all "equal"? 

I am also puzzled about the interaction, if there is one, with COPE. I got a figure for mine which was £89.99 a week. On the face of the letter from the DWP it seems to me that they are giving me that estimate as an explanation for why I might need or want to pay voluntary contributions. That provides context if I say "but I have got 42 qualifying years so why do I need to buy more?". But is that COPE figure (or the number of years one was contracted out) actually used in calculating the amount of state pension I get? If so what is the formula used? 

I have to acknowledge that these are academic questions for me - but my partner is due to retire later this year and I want to make sure that we both understand her situation. 

p00hsticks

DrVenn said:

But paying for a second one would only get me another 78p per week - taking me to the maximum of £185.15. Obviously not worth the investment. I saw one case in this thread where someone would only have got an extra 11p a week. What I am puzzled about is how that happens. How has my "base figure" been generated so that there is a limit to the number of £5.29s I can add? Is it that qualifying years are not all "equal"? 

All qualifying years are effectively equal, and each post-2016 year will add £5.29 (1/35th of the maximum new State Pension amount) to your forecast until you reach the maximum £185.15). however as your 2016 'starting amount' is unlikely to be an exact multiple of £5.29, then it's likely that to get to exactly £185.15 the final year will only be for a less amount, as you;ve discovered.

DrVenn said:

I am also puzzled about the interaction, if there is one, with COPE. I got a figure for mine which was £89.99 a week. On the face of the letter from the DWP it seems to me that they are giving me that estimate as an explanation for why I might need or want to pay voluntary contributions. That provides context if I say "but I have got 42 qualifying years so why do I need to buy more?". But is that COPE figure (or the number of years one was contracted out) actually used in calculating the amount of state pension I get? If so what is the formula used?

The COPE figure was used just once, when calculating the aforementioned 'starting amount' in 2016.

xylophone explains the calculations used here

https://forums.moneysavingexpert.com/discussion/comment/79761420/#Comment_79761420

DrVenn

Thank you. The clarity of your explanation is superb. 

And thanks also to xylophone for the explanation at the link you provided. I should probably have found that, but exhaustion after reading this thread won that battle. 

You have saved me a frustrating, doubtless prolonged, exchange with the DWP.

I've no wish to knock them (I had two spells as a civil servant) but the delays in getting clear replies are indicative of an underlying problem (staff shortage?). Earlier in my saga I got so frustrated at the lack of any response that I complained to my MP. It didn't get me a quicker response, but the DWP did send me £50 by way of apology! 

wmhwmh

Having recently started my state pension, and triggered by a Martin Lewis comment about buying additional class 3 years to bring my state pension to the maximum. While I had 30 years contributions by 2016 I had been contracted out for a few years and so did not get the maximum amount. I decided to look into this to see if I could improve my pension. It would appear that by buying somewhere between 3 or 4 additional years I could indeed increase my pension by £5,29 a week for each year purchased, so buying 4 years would increase it by 4 x £5.29 = £21.16. I checked my national insurance record and did have 4 years from 2018 to 2022 that I could buy and with the costs against each year. So well worth doing. This is I'm sure not news to most people on this forum but I'm a newbie so bear with for the moment.

I also decided to look at my partners situation to see if anything was worth doing. She started her state pension in March 2018, again with the same situation as me at 2016, 30 years contributions a period of contracting out thus below the maximum amount of state pension. We checked her national insurance record but because she had reached state pension age in 2018 there was only 1 year post 2016 that was available to purchase - 2016/17 with the associated cost. Problem was that to bring her up to maximum state pension she required 5 years. Looking at the her national insurance record there were other years "available", specifically 2012-2016 with associated cost, so maybe that was the answer. We requested, through the DWP Pension Service a statement regarding what additional years she could buy and what impact it would have on her pension. They said no problem but it may take some time - possibly weeks or months. Given that there is a deadline of April 2023 before pre 2016 years were no longer available this was concerning. Time to investigate further.

That's when it started to get a bit complicated and a bit unclear. I could not find any clear explanation of what purchasing these pre 2016 years would do. It could be a) Nothing at all, b) Do the same as post 2016 years do and increase her pension by £5.29 for each year, which is what we want or c) Trigger a recalculation of the 2016 starting pension based on the new 34 years contributions, which would then have to be increased for each year to match pension increases. I rang the DWP pension service and while very helpful the did not know the answer. They did however have access to the letter that had apparently already been sent, requested 2 days before but that could have taken months! The Pension Service lady kindly read it out to us. It said that there was only one year that could be added - 2016/17. So not much good then.

My question therefore is why have pre 2016 years made available as part of the new state pension transition period, specifically made available beyond 2016 through to April 2023. There seems to be an age group that hits state pension age shortly after 2016 that very quickly lose out on buying additional years. So what are these pre 2016 years made available? What are the for? Anyone got any insight into why anyone would be in a situation where buying them post 2016 was worth it?

molerat

Paying pre 2016 years may or may not add value to your pension, it is all down to personal circumstances.  Your NI record is a statement of fact, what you have and how much it would cost to buy gap years, it does not show what effect those years will have on any benefits.  The problem is that the 2 computers do not talk to each other, the one that calculates your pension purely pulls data from the one that lists your NI history, the NI history one does not work out your SP so it does not know the effect of that data.

Generally speaking those with a reasonable contracted out period cannot benefit from more than 30 pre 2016 years, those with little or no contracted out can use up to 35 pre 2016 years.  It is fairly straightforward to calculate whether or not you will benefit from pre 2016 contributions but that involves knowing one important amount and that is the COPE figure which unfortunately once past SP age is not shown anywhere.

calcotti

DrVenn said:

..replies are indicative of an underlying problem (staff shortage?). 

.. and lack of training.

molerat said:

.. the COPE figure which unfortunately once past SP age is not shown anywhere.

Didn't know that and it's daft!

wmhwmh

Thanks for the quick response Molerat. So are you saying that buying the pre 2016 years will trigger a recalculation of the 2016 starting pension amount? If so, as you say, it may or may not, add value to the state pension -  but how do we find out? Is the COPE the same as the Contracted out Deduction ( COD )? Neither of which as you say is available. The DWP Pension Service have put in a request for someone from the department that deals with voluntary contribution calculations to give me a call so perhaps I may find out more. I still find it a bit odd that it is not easy to find out what pre- 2016 years do to your state pension calculation and so cannot make an informed decision. 

molerat

wmhwmh said:

Thanks for the quick response Molerat. So are you saying that buying the pre 2016 years will trigger a recalculation of the 2016 starting pension amount? If so, as you say, it may or may not, add value to the state pension -  but how do we find out? Is the COPE the same as the Contracted out Deduction ( COD )? Neither of which as you say is available. The DWP Pension Service have put in a request for someone from the department that deals with voluntary contribution calculations to give me a call so perhaps I may find out more. I still find it a bit odd that it is not easy to find out what pre- 2016 years do to your state pension calculation and so cannot make an informed decision. 

The 2016 starting amount  was based on contributions up to that date so if you add more then it will recalculate that figure. COPE is the contracted out amount that was deducted from your 2016 new pension figure.  It is, as I said, very simple to work out the effect of additional pre 2016 contributions - I have devised a spreadsheet that does it all for you - but without that COPE amount it cannot be done as that decides whether the starting amount comes from the new or old calculations and thus the maximum of either 35 or 30 years are useable. TPS should be able to give you the COPE.  

wmhwmh

Thanks Molerat. I agree the calculation is simple once you have all the relative figures to work out if having 35 years in 2016 makes any differenceI. I'll wait and see what TPS can tell me but I suspect that going down that route of pre 2016 years is a dead end. You never know they may be able to supply both the old and new calculations and show how they decided - that would be handy. However that still leaves my partner in the slightly unfair position of not being able to buy additional years to recover the deducted COPE figure because she hit the state pension age a couple of years after 2016. I'm sure she's not the only one in that position. Thanks again for your input.