Finished work before retirement age

Highdays

Hi.
My husband stopped work at the age of 59 when we moved area. He is now 65 and will be eligible for state pension at 66. His pension forecast says he will receive his state pension at 66 and can not now increase the amount he will receive.
However, his account also shows that he has three payable gaps for 2020-21, 2021-22 and 2022-23. So my question is - is your state pension dependant on you paying NI contributions up to your state retirement age or, if you have made contributions for over 35 years (which he has) is it not necessary to cover those payable gaps? Are they assuming that he will work to 66 so in order to receive his full pension he would need to pay to cover those gaps? If he doesn't need to pay them as he has made sufficient contributuons then why are they showing them as payable gaps? 
Sorry, more than one question there!
Would be grateful if you could shed light on this, many thanks.

p00hsticks

Highdays said:

So my question is - is your state pension dependant on you paying NI contributions up to your state retirement age 

No, not if you have reached the maximum possible earlier.

Highdays said:

if you have made contributions for over 35 years (which he has) is it not necessary to cover those payable gaps?

Also no (sort of). 35 years is only relevant to those born since 2000 and therefore falling entirely under the new State Pension rules. But it would be correct to say that if you have made sufficient contributions it is not necessary to cover those payable gaps, where the number of years that is sufficient will depend on an individuals personal record and circumstances.

Highdays said:

 If he doesn't need to pay them as he has made sufficient contributuons then why are they showing them as payable gaps? 

Because it's a fact that they are gaps and if he wished to he could pay to fill them. The transitional rules following the introduction of the new state pension are very complex and in the time DWP/HMRC have had it would presumably be too complicated to put the coding in place to accurately say which years would or would not increase an individuals forecast (it's not just a case of how many years needs to be filled but different years have a different effect, and the answers will be different for each individual)..

pinnks

NI is like a tax that you must pay if your earnings are above a certain limit, which you can pay voluntarily if you wish to preserve access to certain benefits, including the state pension, but are not paying NIC mandatorily, and which may be credited to your NI record in certain circumstances, e.g. claiming child benefit. 

The fact that his NI record suggests he could pay 3 more years simply means that they are not otherwise showing as full, so are available to pay voluntarily if he chooses, and if he needs them to secure access to those benefits like his state pension.

DWP uses his NI record to calculate his state pension and he may need anything from about 28 years to 50 years on that record to receive the new state pension maximum of, currently, £221.20 per week.  The varying number of years arises because of the complexities of moving everyone across from the old rules to the new state pension on 6 April 2016.

If his pension forecast shows that he will receive at least the new maximum of £221.20 per week (it is possible to receive more than the new maximum in certain circumstances - again because of that 2016 transfer), then he does not need to pay any of those gap years.  He's already got sufficient full NI years to reach his maximum.

Hoenir

Highdays said:

However, his account also shows that he has three payable gaps for 2020-21, 2021-22 and 2022-23. 

If he was still working during those years he would have paid employees NIC for no additional state pension benefit. 

Highdays

Brilliant, clear answers, thank you all so much for taking the time to respond.
It is as we thought but didn't want any nasty surprises when next June comes round.
Many thanks.

FlorayG

I think he's OK. I had nearly 8 years when I didn't make any contributions and because I managed the 35 required I get the full amount

p00hsticks

FlorayG said:

I think he's OK. I had nearly 8 years when I didn't make any contributions and because I managed the 35 required I get the full amount

As I said in my post above, 35 is NOT a hard and fast requirement for anyone born before 2000 - due to the transitional rules applied following the introduction of the new State Pension in 2016 the number of years needed to get the full amount will depend on an individuals record - it can be anything between 29 and 50, according to peoples experiences on this board. 

Highdays

We will just go with the fact that they say he can do no more to increase his pension and at least I now understand why there are some payable gaps on his 'record'. I do wonder, however, how the number of years you paid NI can vary so much when it comes to your pension - there is a big difference after all between 29 and 50 years!

pinnks

It all depends on how the transitional rules work out at 5 April 2016 to move you onto the new system.  Those rules ensure you are not worse off than you would have been had the rules not changed.  They require 2 calculations to be done and to award you the higher amount as your "starting amount" for the new state pension.  For 2016/17 onwards you add 1/35 x £new state pension maximum (currently £6.32) per week to your starting amount until you either reach the new maximum, or run out of time as you reach pension age.

The 2 calculations are:

1. the amount you would have received under the old rules, so a basic pension based on a maximum of 30 full NI years, even if you had already paid 35, or 45, or whatever years, plus any amount of "additional pension" from the earnings-related second state pension, unless you were instead paying into a pension scheme that was contracted out of the second state scheme, in which case your additional pension from the state scheme would be £0
2. the amount you would have received at that date had the new rules always applied, so a pension based on a maximum of 35 years, less an amount called the contracted out pension equivalent (COPE), if you had been paying into a contracted out scheme rather than the second state pension

Those paying into the second state pension could have accrued a basic pension and additional pension of at least the new state pension maximum with about 28 years.  Indeed, they could exceed the maximum and receive a "protected payment" alongside their new state pension at pension age.

Those who will in due course receive their contracted out pension alongside their new state pension, and whose COPE is significant, are likely to have a starting amount equal to the old basic pension maximum.  They would need 9 more full NI from 2016/17 onwards to reach the new maximum, so if they already had, say, 41 years on their NI record, of which only 30 would count under the old rules, they would end up with 50 full NI years to achieve a full new state pension.

Between those 2 extremes virtually any number of years can arise, and one needs to remember that under the old rules, a person with 30, or up to 50 years would receive the same amount of basic pension. 

In my case, I had something like 39 years at 5 April 2016 and a significant COPE.  I can only fill 8 post-2015/16 years before reaching pension age, so will have 47 years or so, ignoring my post-18 education gaps, and will not quite reach the new max.  It is, what it is.
 

Highdays

Thank you so much for that excellent clarification of a very complicated system. It all makes much more sense now. Perhaps I didn't read enough about it at the time of the changeover but it has always been a bif of a mystery! I am older and received the 'old pension' so none of this applied to me. As you say, it is what it is. Hubby will receive £221.20 per week and I'm relieved that we don't have to do anything about the payable gaps which was my initial concern.
Thank you all for sharing your considerable knowledge.