Retired Civil Servant - State Pension

Civvy21

Good afternoon,

I joined the Civil Service in 1978, and retired in April 2016 (37.5 years).  I have not had any employment since. My state pension forecast is £143.96 per week. It says this can be increased to a maximum of £185.15 per week. I understand my state pension is lower than it could be due to civil servants paying NI at a lower rate. Is that correct? If it is then I can't complain. I am very lucky to get the CS pension that I do. Incidentally, my state pension is due to start in 2026.

However, is there anything I can do to increase my projected state pension. Apart from work that is! Or is it not possible to increase my state pension because of all the years I paid NI were at the lower rate? 

Grateful for any advice.

molerat

You can make voluntary national insurance contributions.  They cost around £800 for a year and each will add  £5.29, £275 per year, to your pension.  Your NI record will show which years are available and how much each will cost.  You need another 8 years to reach the maximum £185.15, 7 will add £5.29 each and get you to £180.99 and the 8th will add £4.16 to the full £185.15.

xylophone

I joined the Civil Service in 1978, and retired in April 2016 (37.5 years).  I have not had any employment since.

At 6/4/16 two calculations were done to establish your "starting amount" for NSP.

It was the higher of

Old Rules

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

New Rules

NI years/35 (max) x £155.65 (Full NSP) - Contracted Out Pension Equivalent.

Your COPE (will be shown on your forecast) was used once only in the above calculation.

In your case the higher amount would almost certainly have been given by the old rules calculation.

Your "starting amount" has been index linked under the "triple/double lock" since you ceased paying NI.

Your SA was under a full NSP and you had a number of years before you reached  the tax year before the one in which you would reach SPA.

If you had continued to work  post 6 April 2016 and  to pay  (or be credited with) NI, these further qualifying years would have improved your state pension up to (but not in excess of) a full NSP.

As you retired from employment, you could choose to make voluntary contributions for post 6/4/2016 to improve your pension.

Have a look at the chart  in the booklet  (produced to coincide with introduction of NSP) on p6 here

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

You need eight years to reach full NSP. You should check as above but probably 16/17 to 22/23 and then 23/24?

Audaxer

Civvy21 said:

Good afternoon,

I joined the Civil Service in 1978, and retired in April 2016 (37.5 years).  I have not had any employment since. My state pension forecast is £143.96 per week. It says this can be increased to a maximum of £185.15 per week. I understand my state pension is lower than it could be due to civil servants paying NI at a lower rate. Is that correct? If it is then I can't complain. I am very lucky to get the CS pension that I do. Incidentally, my state pension is due to start in 2026.

However, is there anything I can do to increase my projected state pension. 

You could make voluntary NI payments for 8 years as @molerat says. I would just add that it is definitely worth it as you will recover your outlay within 3 to 4 years of receiving your SP, and after that it is all profit.

pinnks

I agree.  I retired from the CS in 2019 and am currently chugging along filling all years from then-on at the last possible moment before the prices goes up and to guard, so far as possible, against buying years and then croaking or walking under a bus or whatever before reaching SPA.  As others have said, pay about £825 to increase your pension by about £275 per year - payback 3 years.

bluenose1

Yes it was because NI was paid at a lower rate. Definitely worth doing as think you get the equivalent back within 4 years.
There is also the possibility that instead of paying for it you could be entitled to  credits if you are caring for someone on Attendance Allowance/ Disability Living Allowance or caring for a grandchild under 12 years of age. Worth checking eligibility if so.

Civvy21

Thank you all for your very helpful comments and advice. Apologies for taking so long to respond.

It is clear it makes financial sense to make voluntary payments to buy an additional eight years. 

Can I just clarify a couple of things. I understand my pension will increase by £275 per year for each year I purchase. But as I will be paying income tax on my pension (at 20%) the net gain will be approx £220. Is that correct?

Also, presumably it makes sense to buy these additional years at the last possible moment. Which in my case will be early 2026. However, I understand the rules are changing on 31 July this year. In which case I will need to buy 2 additional years before then, and an additional 6 years in early 2026. Does that sound sensible?

As always, grateful for any advice. 

molerat

A year stays at its in year price until 2 years after the end of the year when it increases in price to the current year price, increasing each year, until it becomes unavailable after 6 years.  So 2020-21 increases in price at April 2023, but delayed until August, jumping from £795.60 to £907.40.  The earlier years, 2017-18 to 2019-20 increase from £824.20 to 907.40 and 2016-17 ceases to be available.  So the optimum time to buy a year is within 2 years of it ending.  The current cheapest route is to buy 20-21 before July and any year prior starting with the earliest to increase your options, buying 21-22 before April 24 and 22-23 before April 25.  You only have 4 years (or 3, which tax year do you retire in ?) available going forward including 22-23 so need to get at least 3 from the past, excluding 21-22, before July's price increase.  You can set up a direct debit to pay for 23-24 onwards if you wish.

Yes you pay tax on the state pension via a reduced tax code, you get the state pension in full and the tax is deducted from that other income.

Dazed_and_C0nfused

Civvy21 said:

Thank you all for your very helpful comments and advice. Apologies for taking so long to respond.

It is clear it makes financial sense to make voluntary payments to buy an additional eight years. 

Can I just clarify a couple of things. I understand my pension will increase by £275 per year for each year I purchase. But as I will be paying income tax on my pension (at 20%) the net gain will be approx £220. Is that correct?

Also, presumably it makes sense to buy these additional years at the last possible moment. Which in my case will be early 2026. However, I understand the rules are changing on 31 July this year. In which case I will need to buy 2 additional years before then, and an additional 6 years in early 2026. Does that sound sensible?

As always, grateful for any advice. 

Don't forget your payment is a one off at whatever rate you end up paying, say £824.

You will get £275 (£220 after basic rate tax is factored in) for one year.

The next year will be ~£302 (£242 after tax) as the triple lock will be applied.

But you have still only paid the original £824, or whatever it turns out to be 😊

Civvy21

Thank you Dazed. That is very helpful. I hadn't factored in subsequent pension increases. 

Dazed_and_C0nfused

Civvy21 said:

Thank you Dazed. That is very helpful. I hadn't factored in subsequent pension increases. 

There's no guarantee the triple lock will be around for ever but there will be some form of inflation proofing.