NI Payments remain the same after reaching 35 qualifying state pension years (and SP2)

scottrich

Hi folks,

I know there's a lot of chat about state pensions, options to pay-up missing years and delaying taking the pension (to boost future years income).

However, my first question may be a little basic and obvious (although not a lot of answers out there searching on the internet). My questions are:

1. Once you reach the required 35 years of NI contributions (to receive the full state pension) is there any additional benefit to keep paying NI at the same rate (until retirement)? If there are no benefits, why aren't qualifying people given a lower NI rate?

2. I paid into SERPS / SP2 for a small number of years (and received a statement of benefits as part of my divorce). I'm assuming that, with the 2014 pension reforms, that my SP2 contributions are lost and meaningless (in terms of enhancing any state pension I will receive)?

I missed Martin's ITV show last night, so I'm not sure if any of this was covered, but I suspect that I'm not alone in thinking that most folks wouldn't be happy to continue paying into a DC or DB pension plan if they were told that they will not benefit from those payments (you would stop paying-in or opt-out). So why continue paying the same NI rate once you have full qualifying years for the state pension.

I'm already assuming that the answer to my "continuing to pay the same NI question" is that there is no additional individual benefit and the government is the only one that scores from it. If this is the case, it would be nice to see someone petition the government to reduce the NI rate or offer enhanced state pension (for those that pay more).

Also, with the UK jobs shortage and the government wanting to bring back older workers, reduced or no NI may be a good incentive to sway early-retirers to return to work.

Looks like my questions have turned into a bit of a rant....sorry.

Would love to hear other peoples thoughts (and from those in the know).

Many thanks,

Rich...

Devongardener

I suggest you try to watch Martin’s programme on catch up, it covers most of your questions.
He explained that the NI is just the same as income tax, in that you still have to pay it even after attaining enough qualifying years for the state pension.    However once you reach SP age and continue to work you won’t pay any more NI (although your employer will still pay their contribution). 

Pat38493

1. NI is really just an income tax in disguise and doesn't only cover the state pension.  Also, the 35 years figures that everyone talks about is not directly relevant to most people at the moment as most workers are still in transition from the old to new system and may need more than 35 years to qualify for full SP, especially if they were contracted out.  The 35 years only really is the figure for people who started their career after 2016.

2. Serps is still relevant and part of the calculations that were done in 2016 - fundamentally and probably over-simplifying it, if you were contracted out of SERPS, you would have needed more years than if you weren't.  Some people found they needed 45 years or more of NI to qualify for the new state pension (which by the way is significantly higher than the old basic state pension).

It's also worth mentioning that in some DB schemes this is also the case - it can be the case for example in the NHS scheme that you have to still carry on paying into the scheme even though you have accrued the maximum benefits available (although this has been partially mitigated in recent years as I understand).  

p00hsticks

scottrich said:

1. Once you reach the required 35 years of NI contributions (to receive the full state pension) is there any additional benefit to keep paying NI at the same rate (until retirement)? If there are no benefits, why aren't qualifying people given a lower NI rate?

As you refer to SERPS, you were obviously born last century, and so your underlying premise that 35 years will get you a full state pension is incorrect - that only applies to those born tis century, whose entire working lives so far has been since the introduction of the new State Pension in 2016. The rest of us are under transitional rules and may need more or less years depending on our individual circumstances.  
You need to check your individual State Pension forecast to see your personal details 
Check your State Pension forecast - GOV.UK (www.gov.uk)

In addition to State Pension, the other benefits 'earned' by NI contributions are new style JSA and ESA, which you are only eligible for with a sufficient recent NI record. But basically NI isn't some form of Pension scheme, it's a tax, intended (at least originally) mainly to support the National Health Service. 

2. I paid into SERPS / SP2 for a small number of years (and received a statement of benefits as part of my divorce). I'm assuming that, with the 2014 pension reforms, that my SP2 contributions are lost and meaningless (in terms of enhancing any state pension I will receive)?

Your SERPS contributions will have resulted in a higher 'starting amount' as calculated under the old rules when the new state pension was introduced, potentialyl meaning that you would need fewer years to get to the maximum new State Pension.

Dazed_and_C0nfused

1. Once you reach the required 35 years of NI contributions (to receive the full state pension) 

Do those rules apply to you?  Most people are under transitional rules, it's only people starting to pay NI or build up NI credits from 2016 who fall under the 35 years rule.

scottrich

Thanks for all you answers folks. I've been working for 40 years (come Aug) and had confirmed my eligibility for the full state pension a few years ago (with the NI online service). Kind of makes sense that I may have reached this sooner (due to SERPS) but leaves me feeling a little miffed about continuing to pay full NI since then and for another 10 years.

Knowing that there isn't really a "State Pension Fund" supported, in part, by our NI contributions, I should have realised that NI is just income tax by another name (but it deprecates the ideals of the old NI funded welfare state).

I suppose you never really catch a break as a PAYE employee (that huge group of us workers certainly bears the burden of taxation in the UK).

Thanks again folks...amazed by the fast and detailed responses from you all.

Rich 

xylophone

At 6/4/16, two calculations were done to establish your "starting amount" for new state pension.

You will note that your SERPS/S2P was taken into account.

Your SA was the higher of

Old Rules

NI qualifying years/30 (max) x £119.30 (Full Basic) + (SERPS/S2P - (if applicable) Deduction for Contracting Out)

New Rules

{NIQY/35 (max) x £155.65 (Full NSP)} - (if applicable) Contracted Out Pension Equivalent.

You would have been in one of three positions

(a) Starting Amount equal to a full NSP.

(b) Starting Amount more than a full NSP

(c) Starting Amount less than a full NSP.

If (a), then if under SPA, working and earning the relevant amount,  you would be required to pay NI up to SPA even though it would not increase your entitlement.

Your SA would revalue up to and beyond SPA through the "triple lock" mechanism.

If (b), then if under SPA, working and earning the relevant amount,  you would be required to pay NI up to SPA even though it would not increase your entitlement.

Your SA would revalue up to and beyond SPA through "triple lock" (the amount equal to the full NSP) and CPI (the amount over a full NSP - your "protected payment").


If (c)  then if under SPA, working and earning the relevant amount,  you would be required to pay NI up to SPA - contributions from 6/4/16 up to the tax year before the one in which you reached SPA would increase your SA up to (but not in excess of) a full NSP.

The triple lock became double lock for the year 21/22 only.

https://www.thetimes.co.uk/money-mentor/article/pensions-triple-lock/


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

Above was produced as a Guide to NSP aimed at the general public.

LHW99

Of course, you don't actually have to continue paying NI, whether you have reached maximum state pension or not. It's just that you would have to stop working, so would need enough other investments to give you something to live on.

Those people who stop working before SPA because they have other pension provision they can draw on from, say, 55 to 66 will not pay any additional NI.

Daniel54

scottrich said:

Thanks for all you answers folks. I've been working for 40 years (come Aug) and had confirmed my eligibility for the full state pension a few years ago (with the NI online service). Kind of makes sense that I may have reached this sooner (due to SERPS) but leaves me feeling a little miffed about continuing to pay full NI since then and for another 10 years.

Knowing that there isn't really a "State Pension Fund" supported, in part, by our NI contributions, I should have realised that NI is just income tax by another name (but it deprecates the ideals of the old NI funded welfare state).

I suppose you never really catch a break as a PAYE employee (that huge group of us workers certainly bears the burden of taxation in the UK).

Thanks again folks...amazed by the fast and detailed responses from you all.

Rich 

There is a National Insurance Fund from which state pensions and other contributory benefits are paid.This operates on a pay as you go basis so that current contributions pay for those in receipt of the benefits.The NIF is legally ring-fenced, so whilst it is true that that NI contributions are a tax, it is also true that those contributions cannot be intermingled with general taxation

https://www.gov.uk/government/publications/national-insurance-fund-accounts/great-britain-national-insurance-fund-account-for-the-year-ended-31-march-2022

xylophone

Isn't the OP saying they were contracted in,

OP says

I paid into SERPS / SP2 for a small number of years 

Contracted out for the rest?

hyubh

xylophone said:

Isn't the OP saying they were contracted in,

OP says

I paid into SERPS / SP2 for a small number of years 

Contracted out for the rest?

The OP didn't actually mention any c/o pension though? If you take 'SERPS/S2P for a small number of years' literally, then the OP was contracted in around 2001-2003 only. Which may be true, but they haven't mentioned a contracted out pension yet.