Interaction of voluntary NICs and deferring

squirrelpie

nickane said:

4. @Marcon The point about whether it's "interest" is not just semantics.  The person on the phone from DWP said that it didn't matter when she made the voluntary NICs and she should just backdate as far as possible, because she wasn't going to get any 30-40% uplift from having deferred upon the uplift from making voluntary NICs, as the uplift from deferring is just to compensate her for foregone interest from not having claimed in the last 6+ years.  That sounds like nonsense to me.  They give you more for deferring because you'll claim for less years by the time you die.  Surely, if you get 30-40% more from deferring and you later improve your NI record, they give you 30-40% extra on the uplift you get from doing that too.

They don't backdate the increase in pension from making voluntary NI payments back beyond when you pay them. So there's no deferral involved.

1. Is there a way I can find out her SP entitlement without having to take a day off work, driving 90 mins each way to visit her when the phone lines are open and spending ages on the phone with her in the room? There's no online calculator I can find.

2. If you're a woman born in late 1953, who came of SPA in July 2018, were never contracted out and have 20 qualifying years of NI contributions, how many qualifying years would you need to get a full SP, if not 35?

3. It sounds like your issue with my 20/35 fraction isn't just the denominator but maybe also that the relationship between qualifying years and SP entitlement isn't linear i.e. having 30 qualifying years doesn't get you 50% more SP entitlement than having 20 years for people not born this century.  Is that the case?

(I'm amazed that there's no online calculator for this, but if the logic behind the State Pension entitlement calculation is published somewhere, I can almost certainly figure it out without waiting for the calculation letter.)

Pension law is very complicated. That's why there are no online calculators. There are people here who do understand the rules in detail and can work out the answer if given all the information. One main complication is contracting out. You say she never was - are you absolutely sure about that? If so then if you can post how many complete NI years she has before 2016 and how many after 2016 (and 2016 itself) then I think they'll be able to tell you her entitlement. Oh and the date she 'should' have received it.

nickane

Thanks so much for your responses so far.  I think you misunderstand my fundamental query though.

I'm not in two minds as to whether to buy as many NIC years as she possibly can.  She can only buy 12 to make it up to 32.  There's no way it's not going to be worth her while to do that.  I'm doing my utmost to make that happen.  Looking online, it seems she just needs to pay 12*£824.20 with the right info in a letter and the cheque on the back and we're golden.

What I'm concerned about is when to start claiming her pension. 

A) If she claims now and backdates the maximum 12 months, she'll get a lump sum based upon a 33% uplift for deferring upon 20/35 years of contributing.

i. But then, when she makes the voluntary NICs a few weeks later, she may never get a 33% uplift upon the additional pension she gets from making the voluntary NICs.

ii. Or maybe the chap on the phone is wrong and she does.

 However, if I wait a few weeks until she may have a fuller NI record before claiming, but don't backdate, she'll get 39% for deferring and the deferral bonus might be based upon 32/35 years, not 20/35 years.  He wasn't sure but kept encouraging me to apply for her SP ASAP, even though that could cost leave her much worse off.

C) Maybe I could even wait those few weeks, but backdate it and, when calculating the lump sum, they'll see that she has 32/35 years of contributions, so she gets a 33% uplift on a lump sum based upon 12 months at 32/35 years of contribution AND 33% uplift based upon 32/35 not 20/35 years of contributions going forward.

The difference between these outcomes is really significant and all hinges upon when I send off the form and when I choose to start her claim, relative to when the NIC payment clears.

Does that make sense?

--------------------

In answer to your other queries...

1) PC is not likely to be viable as after she settles all unpaid utility bills and pays for the voluntary NICs, she'll still have close to £100k.  She's also expressed interest in downsizing her home and moving out of London to be nearer family who can support her, which would increase her savings much further.  Maximising her weekly SP payment by making as many voluntary NICs, as she can is not likely to be something she regrets according to the MSE page on the subject.

2) Definitely going to be looking into Gretel, thanks.  She thinks she has maybe 2 or 3 private pensions but only paid into each for 2-3 years at most.  She was a housewife from about aged 30, lived abroad for a long time, and didn't work much after that.  She made voluntary NICs for many years, but seems to have stopped in her mid-40s, despite always hinging her financial planning around the State Pension.

3) I get the issue finally.  The old state pension was immensely complicated and only the gov can advise upon her entitlement.  But when we spoke to DWP on the phone, they basically claimed they couldn't as they can't view people's records once they reach SPA.  I get that the answers to the questions I'm outlining above are arcane.  But I don't get how finding out her SP entitlement can be so difficult even for the gov.  Once she applies, they're going to have to pay her something.  If they'll know what to pay her then, why can't they tell me now?

xylophone

2. If you're a woman born in late 1953, who came of SPA in July 2018, were never contracted out and have 20 qualifying years of NI contributions, how many qualifying years would you need to get a full SP, if not 35?

 She was single, childless, never contracted out and reached SPA in July 2018?

On the face of it, her entitlement ("starting/foundation amount")  at 6/4/16 (inception of NSP) was the higher of

Old Rules

NIQY at that date/30  (max 30) x £ 119.30 (Full Basic SP) + Additional State Pension {Graduated Pension (to 1975), State Earnings Related Pension (to 2002)/ State Second Pension (to 2016)}.

New Rules

NIQY/35 (max 35) at that date x £155.65 (Full NSP).

Are you saying that she had only 18 QY at 6/4/16 (ie 16/17 and 17/18 were QY)?

Let's suppose she had 20 QY at inception and none after

20/30 x £119.30 + (Additional State Pension) = £79.53 + ASP

20/35 x £155.65  = £88.94

If she was employed pre 2016  it is quite likely that she would have ASP greater than the difference between the two calculations so that her starting amount would be based on the old rules.

For example, suppose her SA was £100 - she would only need to buy twelve years rather than fifteen.

https://www.gov.uk/voluntary-national-insurance-contributions

squirrelpie

"If they'll know what to pay her then, why can't they tell me now?"

They don't know what to pay her then. They'll have to spend [a long] time calculating to work it out manually when she claims. Which is why they don't want to do the calculations now just for your interest.

As I already said, they don't backdate the pension increase if you pay voluntary NI, so you don't have the theoretical conflict you see. (Probably because it would make the sums too difficult, and also to encourage people to do it sooner.)

Marcon

squirrelpie said:

Pension law is very complicated. That's why there are no online calculators. There are people here who do understand the rules in detail and can work out the answer if given all the information. One main complication is contracting out. You say she never was - are you absolutely sure about that? If so then if you can post how many complete NI years she has before 2016 and how many after 2016 (and 2016 itself) then I think they'll be able to tell you her entitlement. Oh and the date she 'should' have received it.

No - she's under transitional arrangements and given her age/when she was working, it's likely she will have some SERPS entitlement on top of basic state pension (possibly graduated pension, but as that will be about 4p a week probably no need to get too bogged down!).

There's also the possibility that she could inherit/have already inherited some state pension from her (former/late) husband...

There's just no point trying to fine tune this with so many unknowns and at such a late stage in the game. Thinking macro rather than micro is likely to be the only option, in the absence of any hard input based on her actual NI record.

xylophone

https://assets.publishing.service.gov.uk/media/5a7a21fd40f0b66a2fc00201/single-tier-pension-fact-sheet.pdf

might be worth a look - it was  Govt. produced as an  introduction to NSP back in around 2013.

nickane

Amazing! Thanks so much.  Here's all the relevant info @squirrelpie requested and your assumptions queried:

-She was married but was longsince divorced by the time she reached SPA
-She has two children and her last full qualifying year is from when her youngest was about to turn 16 (CB presumably automatically gave her a year)
-She has 20 pre-2016 years and 0 thereafter
-SPA July 2018 as you said
-I don't believe she was ever contracted out as her full years are mainly from the time she was working or lived abroad.  The missing years are from a period where she didn't work.  There's a few partial years from when she worked, but I think they're from her moving abroad or returning from abroad mid-tax year.  I'm assuming years in which you're contracted out don't count as full years on your NI record?

molerat

Applying to top up the pension should pause the cut off, the problem is that it could take several months to get the reply.  You then have to pay and get that recorded which would add another couple of months.  Once the NI record is updated you then apply for the pension which again will take a few months before it comes into payment. I can't see her receiving any pension for at least a year.  The problem is that the two important stages, asking for the top up details and calculating the pension for payment are back office manual operations almost akin to Gringotts Bank !  I am wondering if the best approach would be apply for the pension at the same time as applying for a top up quote.

nickane

@squirrelpie

I think I get you.  I didn't realise that it would be so complicated for them to calculate.

I also understand that she hasn't technically deferred pension payments those extra 12 years of NICs would have bought her if she'd made them before SPA.  I also understand that topping up NICs can only increase pension payments made after you've topped up.  But if the calculation is so complicated, I find it hard to believe that, if she doesn't start claiming her pension until we're sure her voluntary NICs are maximised, that they would complicate it further by calculating the deferral bonus accrued before voluntary NICs and any that may come thereafter (if we claim a few weeks after the NIC payment has been acknowledged)? All the guidance about deferring just makes it sound like you get x% extra based upon the age at which you claim.  If you're NI record is in better shape by then, I'd assume that that you get x% based upon whatever you're due at the time you claim not whatever you were due when you reach SPA.

@molerat

By requesting the calculation, have we not already applied to top up? They didn't say that that paused the cut-off.  They said "the letter takes 6-8 weeks, the deadline is in just under 7 weeks... you're cutting it pretty fine."

We've just today managed to get her a bank account and sort code which was the last thing holding me back from applying for her pension, other than these unknowns.  If you're all sure waiting until after she's made the voluntary NICs won't make any difference, I suppose i should just apply and backdate 12 months ASAP.

Marcon

nickane said:

By requesting the calculation, have we not already applied to top up? They didn't say that that paused the cut-off.  They said "the letter takes 6-8 weeks, the deadline is in just under 7 weeks... you're cutting it pretty fine."

We've just today managed to get her a bank account and sort code which was the last thing holding me back from applying for her pension, other than these unknowns.  If you're all sure waiting until after she's made the voluntary NICs won't make any difference, I suppose i should just apply and backdate 12 months ASAP.

Asking for information isn't usually the same thing as formally applying to top up.

If you're all sure waiting until after she's made the voluntary NICs won't make any difference, I suppose i should just apply and backdate 12 months ASAP.

I'm afraid that must be your call - nobody here has access to this lady's NI history or any other relevant information and certainly nobody here is insured to give definitive confirmation that would be the 'right' thing to do.

I'm hugely impressed by the amount of effort you are putting in to help your relative, and I do so hope things will 'work out for the best'.