State pension NI contributions confusion

AlanF

Hi MSE clever people!

I wonder if anyone can advise about qualifying NI contributions for state pensions? My wife and I are pension planning and have both obtained our state pension forecasts through the gov.uk "check your state pension forecast" web site. My wife's preduction is slightly below the full pension (I can give updated figures if needed) and says she needs 3 more years to get full pension (that won't happen as we are both retired now, but not yet reached state pension age!). However, the gov.uk web site then lists her NI contributions, and said (at our last estimate in 2022):

You have

• 43 years of full contributions
• 8 years to contribute before 5 April 2029

You do not have any gaps in your record

My understanding is that 43 years of full contributions (and the details list 'full contribution' every year from 1978-79 up until 2022) should be sufficient for a full state pension, and our financial adviser suggested we call the department.

No easy feat, a lot of waiting, but eventually we did get to speak to someone, who said it was because she was 'opted out' for some of those years. No further details, but they suggested it could have been into a different pension scheme. This confused me - she has been in the NHS for her entire career, and been paying into the NHS Pension scheme for all of that time - but still paying NI contributions (I am in the same boat myself, and my predicted pension is the maximum, and my record shows 40 years of full contributions and 3 years when I did not contribute enough - similarly I was in the NHS pension scheme for much of my working career). We are both now in receipt of our NHS Pensions.

So my question is, if my wife's record shows 43 years of full contributions, is it possible they have made a mistake, or is it perhaps possible that she has another pension somewhere that she doesn't know about related to the 'opting out' issue raised by the gov.uk telephone call?). 

Thanks

AlanF

MallyGirl

The answer is - its complicated. You are both in the transitional period so there is a calculation to be done which involves a lot more than just full years. being opted out comes in to it - the will be a COPE amount on the forecast in that case.

Post up the full details from your pension forecast and someone will point you in the right direction.

Current £££.pp amount accrued up to April 2022 (and if that amount was from a forecast pre or post April 11th 2023)
Number of pre 2016 NI years full
Number of post 2016 NI years full
Tax year you reach state retirement
Any COPE amount shown
Years which show not full and prices

Dazed_and_C0nfused

says she needs 3 more years to get full pension (that won't happen as we are both retired now, but not yet reached state pension age!). 

Does it actually say that or is it simply that she has 3 years where, if she earned enough, she would pay NI?

Either way you need to post her forecast in full if you want the correct answer.

p00hsticks

AlanF said:

So my question is, if my wife's record shows 43 years of full contributions, is it possible they have made a mistake, or is it perhaps possible that she has another pension somewhere that she doesn't know about related to the 'opting out' issue raised by the gov.uk telephone call?). 

It's not a mistake.
 The 'opting out' is actually 'contracting out' and is referring to her NHS pension - she will have paid a lower rate of NI prior to 2016 due to being enrolled in this pension scheme. Her forecast will showing a COPE amount (it's hidden behind a clickable link that says something like ' like many you have been in a contracted out pension scheme' ).

 The COPE amount was used when calculating each individual persons 'starting amount' on the introduction of the new State Pension - transitional rules allowed the higher of the two amounts under the old and rules, and a high COPE usually means it was that under the old rules, which led to a starting amount around that of the old basic state pension (currently £156.20).

 The end result is that those who were contracted out but don't reach State Pension age until a few years after introduction of the nSP get a second bite of the cherry, with the previously unexpected opportunity to boost their starting amount up to the higher new state Pension maximum (currently £203.85), whilst still benefitting from their occupational pensions as well, although this may involve working or making voluntary NI contributions for additional (post-2016) years.

molerat

My understanding is that 43 years of full contributions (and the details list 'full contribution' every year from 1978-79 up until 2022) should be sufficient for a full state pension, and our financial adviser suggested we call the department.

Your understanding is incorrect and few financial advisors have a good understanding of the state pension, if they had looked at and understood what your forecast showed there would have been no need to contact the FPC.

(that won't happen as we are both retired now, but not yet reached state pension age!)

It is within your power to make it happen via voluntary contributions.  The gross payback time is around 155 weeks, equivalent to a 30% annuity and where have you seen one of those advertised !

Post up the details as requested above and someone will talk you through your options.  The answer to everything is within those 6 simple points, all contained in your forecast and NI record.

Do either of you look after grandchildren whilst the parent is working ?

eskbanker

AlanF said:

if my wife's record shows 43 years of full contributions, is it possible they have made a mistake

It would normally show something like '43 full years of contributions', a subtle but important distinction, i.e. it's the years that are full (as opposed to part years) rather than the level of contributions....

AlanF

Ahh, thanks so much for all of that! It is indeed complicated! We have just done the updated forecast, and I hadn't noticed that there is indeed more information about the 'contracted out' bit behind the link!

So, the details are, from today's estimate (so based on the max of £203.85 per week).

• Estimate based on your National Insurance record up to 5 April 2022 - £190.98
• Forecast if you contribute another 3 years before 5 April 2029 - £203.85
  
• Full years prior to 2016 - 37 (this excludes 2015-6)
• Full years after (and including 2015-6) - 5 (and one part year, as she retired mid year)
• Reaches state retirement March 2030
• Part year 2021-2 - Year is not full - You have contributions from paid employment: £222.63 You can make up the shortfall - Pay a voluntary contribution of £261.80 by 5 April 2028. This shortfall may increase after 5 April 2024.
• Your COPE estimate is £49.66 a week
  

Hope this covers everything. Ultimately the shortfall isn't massive (£13 per week) so there's a limit to how much capital we would want to throw at maximising it.

Many thanks for the very rapid and comprehensive replies!

Alan

af1963

Paying the part-year would almost certainly be a good idea. You'd "buy" £5.82 per week, for life, for a single payment of £261; so you'd get the payment back within less than a year after retiring.  

Buying further years would cost more - currently about £900.

Buying one more year could be worthwhile ( it would add another £5.82 and take about 3-4 years to get back) .

But buying the third year would cost the same and add much less, because you'd only be about £1.30 short of the maximum.

jem16

AlanF said:

Ahh, thanks so much for all of that! It is indeed complicated! We have just done the updated forecast, and I hadn't noticed that there is indeed more information about the 'contracted out' bit behind the link!

So, the details are, from today's estimate (so based on the max of £203.85 per week).

• Estimate based on your National Insurance record up to 5 April 2022 - £190.98
• Forecast if you contribute another 3 years before 5 April 2029 - £203.85
  
• Full years prior to 2016 - 37 (this excludes 2015-6)
• Full years after (and including 2015-6) - 5 (and one part year, as she retired mid year)
• Reaches state retirement March 2030
• Part year 2021-2 - Year is not full - You have contributions from paid employment: £222.63 You can make up the shortfall - Pay a voluntary contribution of £261.80 by 5 April 2028. This shortfall may increase after 5 April 2024.
• Your COPE estimate is £49.66 a week
  

Hope this covers everything. Ultimately the shortfall isn't massive (£13 per week) so there's a limit to how much capital we would want to throw at maximising it.

Many thanks for the very rapid and comprehensive replies!

Alan

Based on that then yes 3 years would be required to reach the full nSP as you’re short by £12.87. Two years will add £11.64 and the third year will add the final £1.23 as you can’t go above the max. That third year isn’t such great value but up to you. 

I’d certainly pay the 2021/22 part year. After that pick the year with the least payment. Do not pay any year prior to 2016/17 as it won’t improve your pension. 

xylophone

Your wife was a member of a  defined benefit pension scheme (NHSPS) which was "contracted out" of state additional (not Basic)  state pension scheme until 5/4/16.

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

The New State Pension Scheme was introduced 6/4/16.

At inception of NSP, your wife's "starting ("foundation") amount was calculated under the old and new systems and was the higher of the two.

Old Rules

Full Basic State Pension (because she had at least thirty qualifying years) + (Additional State Pension - Deduction for Contracting Out).

New Rules

Full NSP (because she had at least thirty five qualifying years) - (used once only for this calculation) Contracted Out Pension Equivalent (Rebate Derived Amount).

Her starting amount was under a full NSP and she had a number of years from 6/4/16 until  the tax year before that in which she reached SPA. 

Contributions /credits making those years "qualifying years" could improve her "starting amount" up to (but not in excess of) a full NSP.

If none of the years from 6/4/16 are qualifying years, then the starting amount will have been indexed under triple/double lock but will still not be equal to a full NSP.

If you provide the details requested in posts above, some information about voluntary contributions can be provided.

molerat

If she was to buy the 3 currently cheapest years, 21-22, 22-23 & 23-24 it will cost £1993.40 and at £12.87 per week will repay gross in 155 weeks.  The cost increases with inflation each year as does the amount received.

How it works

At the inception of the new pension in April 2016 a line was drawn and those with a NI history prior to then were given the higher of the old or new calculations at that time.  With 38 years of contributions up to then the 2 calculations were 30 x (£119.30 / 30) plus £8.75 additional pension (£128.05) or 35 x (£155.65 / 35) - £49.66 COPE (£105.99) so the old amount was higher.  Contributions from then could be added up to the full amount.  That £128.05 is now worth  £167.68 and the 4 years since have added £23.30 giving the current £190.98 leaving £12.87 to the maximum £203.85.