State Pension and Voluntary NI Contribution Advice

dogfonos

I would appreciate comments and, hopefully, explanations from knowledgeable forumites...

Martin's comments on Nihal's BBC 5 Live radio show earlier this week prompted me to better understand my State Pension entitlements so I've spent the past few hours trying to make sense of it all. I've checked my NI contribution record and state pension forecast, read the MSE article (and others) on buying NI years, checked a few relevant threads on these forums then, this afternoon, 'phoned the Future Pension Service. The agent was helpful but it's left me a bit confused.

The Future Pensions Centre told me that I can't make NI contributions for years prior to 2016 (in truth, I may not even need to). This seems contrary to what I've read. I checked my understanding but the agent was adamant. Perhaps my circumstances preclude contributions to earlier years?

• I'm 64 yrs old, have 32 years of full NI contributions (all prior to 2006-07) and was contracted out of SERPS for a number of years (can't remember how many).

• I ceased full-time employment in 2002-03 and thereafter took occasional zero-hour contract work and voluntary work.

• For reasons I don't understand, my records show full NI contributions for the next three tax years (2003-04, 2004-05 & 2005-06). A mix of paid NI contributions through employment + tax credits) after I ceased full-time employment.

• Then follows five consecutive tax years, starting 2006-07, where I paid some NI contributions through paid employment so topping these years up with voluntary NI contributions would cost less than topping up later years where I've made no employment NI contributions.

• I'm currently not eligible for tax credits.

My questions are:

1. Is Future Pension Centre correct in that I can't make additional NI contributions for tax years prior to 2016?
2. Why did Future Pension Centre tell me I need 40 qualifying years of full NI contributions for a full state pension? Why not the usual 35 years?

Thanks in anticipation.

molerat

In general if you were in a contracted out pension you are limited to using a maximum of 30 pre 2016 years so adding more cannot help.

35 years is only applicable to those starting out from 2016.  Anyone with a pre 2016 history is on a hybrid scheme and was given the higher of the old or new scheme amounts as a starting point with the ability to top up post 2016. You may need more or less than 35 years to achieve more or less than the full amount, more years not necessarily meaning more pension - I have 42 and do not receive (and could not achieve) £185.15.

What exactly does your pension forecast show ?

xylophone

What exactly does your state pension forecast say?

Dazed_and_C0nfused

My questions are:
Is Future Pension Centre correct in that I can't make additional NI contributions for tax years prior to 2016?

Highly unlikely to be correct.  But the more important question is would additional contributions increase your State Pension?  The answer to that is almost certainly not.

But if you are being altruistic just give the equivalent to a local charity.

Why do you think 35 years is relevant when you are under transitional rules 

Why did Future Pension Centre tell me I need 40 qualifying years of full NI contributions for a full state pension? Why not the usual 35 years?

dogfonos

Appreciate your responses.

My original post was already too long so I left out some info. such as:

The Future Pension Centre explained how I can contribute voluntary NI contributions to achieve the (almost) full new state pension payment when I retire at age 66. I simply pay NI contributions for the last six years (i.e. 2016-17, 17-18, 18-19, 19-20, 20-21 and 21-22) + 2022-23 and 23-24. I then start drawing the state pension when I "retire" the following tax year. Turns out this will get me a few pence short of the full state pension (can't remember exact figure).

Dazed_and_C0nfused said:

My questions are:
Is Future Pension Centre correct in that I can't make additional NI contributions for tax years prior to 2016?

Highly unlikely to be correct.  But the more important question is would additional contributions increase your State Pension?  The answer to that is almost certainly not.

That's what I thought. And you're correct in that it wouldn't benefit me to make any voluntary NI contributions pre-2016 - that's what I was told.Trouble is, when I've been given incorrect info. from an official source, I start to question other info that was given.

The reason I raise this issue of pre-2016 voluntary NI contributions is that for five years starting 2006-07 I already have some NI contributions through zero-hours employment so "topping up" those particular years would cost me less than topping up more recent years. However, the Future Pension Centre said topping up earlier years would not increase my state pension. I don't know why but, judging from your post, it seems to have something to do with transitional arrangements.

Can anyone direct me to a definitive government document that covers all these topics? I've trawled through scores of government web pages and info on the topic seems very fragmented.

Dazed_and_C0nfused said:

Why do you think 35 years is relevant when you are under transitional rules 

Why did Future Pension Centre tell me I need 40 qualifying years of full NI contributions for a full state pension? Why not the usual 35 years?

40 years can't be an arbitrary figure so where does it come from? How is it calculated? Is there an official government document/source of info that explains this on the web?

molerat said:

In general if you were in a contracted out pension you are limited to using a maximum of 30 pre 2016 years so adding more cannot help.

I didn't know the 30 maximum rule. Thanks for the info. All my 32 full contribution years are pre-2016 so that would mean 2 of these years don't count. In which case, something doesn't tie up because I was told I need 40 full NI contributions years which could be achieved by voluntarily contributing to 8 more post-2016 years. That would give a total of 38 full NI years, not 40. Hmm.

xylophone said:

What exactly does your state pension forecast say?

Haven't got the info to hand at present. Will post tomorrow but I will make the point that it's the rules and the process I'm trying to understand. I'm happy to make the necessary voluntary NI contributions to achieve a pension fractionally shy of the full £185.15 weekly pension payment and I always feel uneasy if I don't fully understand the rules/process.

p00hsticks

dogfonos said:

Can anyone direct me to a definitive government document that covers all these topics? I've trawled through scores of government web pages and info on the topic seems very fragmented.

It's not a government document, but I've found this guide from Royal London very helpful

https://www.royallondon.com/about-us/media/media-centre/good-with-your-money-guides/the-new-state-pension-your-questions-answered/

I can't see a date on it - I think it;s been updated since 2016 as the oroginal version contained a flow chart which I can't now see, but a quick glance suggests that the amounts quoted for the old basic state pension and maximum new state pension may be  slightly out of date I think - they are now £141.85 and £185.15 respectively)

for the full on government take  think you;d have to go back to the legislation, but there is this

https://www.gov.uk/government/publications/new-state-pension-if-youve-been-contracted-out-of-additional-state-pension/the-new-state-pension-transition-and-contracting-out-fact-sheet

Edit - the calculations are contained within the 2014 Pensions Act legislation which can be found here

https://www.legislation.gov.uk/ukpga/2014/19/schedule/1

molerat

molerat said:

In general if you were in a contracted out pension you are limited to using a maximum of 30 pre 2016 years so adding more cannot help.

I didn't know the 30 maximum rule. Thanks for the info. All my 32 full contribution years are pre-2016 so that would mean 2 of these years don't count. In which case, something doesn't tie up because I was told I need 40 full NI contributions years which could be achieved by voluntarily contributing to 8 more post-2016 years. That would give a total of 38 full NI years, not 40. Hmm.

The years don't count but they are still there, they don't just disappear, and any S2P earned during those 32 years is still used, they are still "full contribution" years..  The starting amount at 2016 was calculated as the higher of  up to 30 x (£119.30 / 30) + (S2P (- contracted out deduction which was already deducted from any figure you saw in a forecast)) or up to 35 x (£155.65 / 35) - COPE.  Your forecast shows you need another 8 years on top of that figure to reach the maximum so 8 + 32 = 40.

dogfonos

Many thanks for the links and explanations.

I said I'd post my state pension summary so here it is:

Estimate based on your National Insurance record up to 5 April 2022, £147.45 a week

Forecast if you contribute until 5 April 2024, £158.03 a week

You have shortfalls in your National Insurance record that you can fill and make count towards your State Pension.

The most you can increase your forecast to is £185.15 a week

(NB The Future Pension Service explained that I could achieve this exact figure of £185.15 if I paid further voluntary NI contributions in the tax year in which I retire (i.e. 2024-25) but I'd need to contribute around £800 for just a few extra pence a week so not financially beneficial for me to do so)

Your COPE estimate is £72.40 a week

I've never seen mention of COPE before - new to me - but it makes sense. I have been drawing a final salary/defined benefit company pension for around 7 years but I haven't started to draw the COMPS money purchase/defined contribution element as yet. I plan for the COMPS part of the pension to start at the same time as the state pension (i.e. mid 2024 when I reach 66 yrs of age).

Probably best for me to read some more on the subject then come back to these forums if I'm still unclear on any aspects.

Really appreciate your time and thanks again.

molerat

Not much thinking required, buying additional years is a no brainer decision.

You currently have £147.45 per week.

The 2 years going forward, 22-23 and 23-24 will bring that up to £158.03

You can purchase another 6 past years to bring up to the full £185.15 but 5 will bring you to £184.48, only 67p short.

The only real decision is whether to buy 6 past and 1 forward or 5 past and 2 forward bearing in mind that 16-17 ceases to be available in April and 17-18 to 20-21 will increase to £907.40 from that date.

p00hsticks

dogfonos said:

(NB The Future Pension Service explained that I could achieve this exact figure of £185.15 if I paid further voluntary NI contributions in the tax year in which I retire (i.e. 2024-25) but I'd need to contribute around £800 for just a few extra pence a week so not financially beneficial for me to do so)

I think you may have misheard or misunderstood that - the tax year in which you reach state pension age doesn't count when calculating your state pension entitlement (as you stop paying NI when you reach that point, it can never be a full year)    

calcotti

p00hsticks said:- the tax year in which you reach state pension age doesn't count when calculating your state pension entitlement (as you stop paying NI when you reach that point, it can never be a full year)     

I know this is frequently said but I don’t understand why that is true for everybody. If people are in work you can get a full year of contributions without working for a full year depending on how much you earn. Is there some regulation that specifically excludes the year in which pension age is reached  from being counted.