State Pension and Voluntary NI Contribution Advice

molerat

calcotti said:

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. 

Not sure where it is in legislation but if you look at your state pension forecast it clearly states "If you contribute until 5 April XXXX", the end of the FY before you reach SP.  The tax year in which you reach SP has never counted towards the pension.

edit: https://www.legislation.gov.uk/ukpga/1992/4/section/44

(7)In this section—

(a)“relevant year” means 1978-79 or any subsequent tax year in the period between—

(i)(inclusive) the tax year in which the pensioner attained the age of 16, and

(ii)(exclusive) the tax year in which he attained pensionable age;

calcotti

Thanks molerat.

xylophone

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

On 6/4/16, two calculations were done for you.

Old Rules

NI years (max 30)/30 x £119.30 (Full Basic) + (Additional State Pension - Deduction for Contracting Out).

New Rules

{NI years/35 (max) x £155.65 (Full NSP)} - COPE.

Your "starting amount" was the higher of the two.

It was less than a full NSP.

It has revalued since then under the triple/double lock indexing rules but is still under a full NSP.

You are able to improve your situation by making voluntary contributions for years from 6/4/16 up to the  tax year before you reach SPA.

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

was the original Royal London Guide. See chart page 6.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

was the Government's  original"Janet and John" Guide to NSP.

itsmeagain

Only quickly scanned but...

You need 35 years of NEW state pensions to get the current max of £185.15 per week.

The NEW state pension only started in 2016, so it's impossible for anyone to have 35 years of NEW state pension contributions before 2051.

So, they value how much your old style state pension is worth at 2016, then add £5.29 per week to your pension for every complete year of NEW state pension contribution you make.

The old years of contribution will may say 'full' whether they were contracted out or not, but someone looking now in their 50/60's may need say 42 years contribution for their old (possibly maxed out) + NEW pension to equate to the value of 35 years NEW style pension.

This is not explained without searching far deeper than you should need too, and many people don't get past reading the forecast, and if they do see the lower figure below, nearly always wonder why they need 35 years, already have 39 'full' and still short of the £185!

p00hsticks

xylophone said:

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

was the original Royal London Guide. See chart page 6.

Thanks xylophone, that was the guide I was looking for - although the Royal London link I posted is also very helpful, I think .

dogfonos

p00hsticks said:

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)    

Indeed so. Brain fug. The dates were correct in my earlier post:

"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."

EDIT: I'll only pay for seven tax years as paying an eighth clearly isn't worth it.

molerat said:

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.

Agree. That's what I'll be doing. I'm currently reading through the links kindly provided as I like to understand all aspects of subjects I'm involved with - especially when it concerns one-time-only big money decisions.

Interesting point about exactly which of the seven tax years to contribute to. In terms of pension benefit (i.e. payout) I can't see it makes any difference but in terms of my voluntary contributions required, I'll choose the cheapest years I guess.

xylophone said:

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

On 6/4/16, two calculations were done for you.

Old Rules

NI years (max 30)/30 x £119.30 (Full Basic) + (Additional State Pension - Deduction for Contracting Out).

New Rules

{NI years/35 (max) x £155.65 (Full NSP)} - COPE.

Your "starting amount" was the higher of the two.

Seems the first calculation was used (although I've no idea of the amount I paid in to a S2P - where is that figure?) because the second calc. gives a figure of £69.91. Is there any way of asking the FPS for a copy of all the calculations involved in setting my pension amount? It's all very well chatting to the FPS over the 'phone but it seems too casual considering the importance of the subject. I've read that one can request such a calculation but some have said it takes ages - could be into April by then.

After I've paid voluntary NI contributions, as I intend to do, will the government's online pension forecast be updated to reflect the new situation or should I receive paper/email confirmation of the new pension payments?

itsmeagain said:

someone looking now in their 50/60's may need say 42 years contribution for their old (possibly maxed out) + NEW pension to equate to the value of 35 years NEW style pension.

This is not explained without searching far deeper than you should need too

Is it because the government are reducing pension benefits for many and they don't wish to draw attention to that?

Once again, many thanks for your time and knowledge - not to mention patience in dealing with a pension novice!

calcotti

dogfonos said: Is it because the government are reducing pension benefits for many and they don't wish to draw attention to that?

In the medium to long term many people will likely have higher state pensions than under the old systems - but if that is their only income they will be no better off because under the old system the state pension would be topped up by Pension Credit whereas under the new system they will not.

Silvertabby

calcotti said:

dogfonos said: Is it because the government are reducing pension benefits for many and they don't wish to draw attention to that?

In the medium to long term many people will likely have higher state pensions than under the old systems - but if that is their only income they will be no better off because under the old system the state pension would be topped up by Pension Credit whereas under the new system they will not.

And don't forget that eligibility for pension credit opens the door to many more means tested benefits.

molerat

dogfonos said:

Seems the first calculation was used (although I've no idea of the amount I paid in to a S2P - where is that figure?) because the second calc. gives a figure of £69.91. Is there any way of asking the FPS for a copy of all the calculations involved in setting my pension amount? It's all very well chatting to the FPS over the 'phone but it seems too casual considering the importance of the subject. I've read that one can request such a calculation but some have said it takes ages - could be into April by then.

After I've paid voluntary NI contributions, as I intend to do, will the government's online pension forecast be updated to reflect the new situation or should I receive paper/email confirmation of the new pension payments?

The online forecast will update usually around 6 weeks after payment.

Getting a personal account of your S2P could take a very long time.  It is a manual task, someone trawling through your records and writing it all down. So it all depends on how much you trust them to have the correct figures.  It can be worked out what your S2P was at 2016 - £4.68 within a penny or two - from your current amount, your COPE and pre 2016 years - the COPE is not strictly necessary but shows if old or new calculation was used for certainty.  From your current amount it can be back calculated to 2016 as it is purely increased by inflation so £147.45 is £123.98 at 2016.  The basic old pension at 2016 was £119.30 leaving £4.68 S2P.  This method worked for me as I knew what my S2P was as I was getting annual forecasts from 2009 under the old system.

xylophone

Re SERPS

https://en.wikipedia.org/wiki/State_Earnings-Related_Pension_Scheme

Re S2P

https://en.wikipedia.org/wiki/State_Second_Pension