Contracted out National Insurance Contributions

molerat

katejo said:

p00hsticks said:

Chrisbdh said:

. To get the full basic State Pension you need a total of 30 qualifying years of National Insurance contribution however, if you contracted-out you require a total of 35 qualifying years. 

Both of those statements are inaccurate. 

If you reached state Pension age prior to April 6th 2010, you would have needed 44 NI years for a full basic State Pension (currently £176.45) if male, but only 39 if female. 

If you reached State Pension Age between April 6th 2010 and April 5th 2016 you would have needed 30 years NI for a full basic State Pension.

If you reach State Pension age after April 6th 2016 but were born last century, you'll fall under transitional rules and will need anything between (anecdotely) around 28 to 49 years to qualify for the full higher new State Pension (currently £230.25) although those without NI credits for several years after that date (either by reaching SPA soon after or by not earning them through either employment, benefit credits or voluntary contributions) may not be able to achieve that full figure. The number of years required will vary from individual to individual depending on their specific circumstances, including whether they were contracted in or out for periods prior to 2016. 

If you were born this century and so your NI record starts after 6th April 2016, then under current legislation you will qualify for a full new State Pension once you have 35 NI years.  

I fall into the category of being born last century and reaching state pension age post 2016. My state pension statement, dated 2024 (when I had paid in for 34 years),  says that I can't increase the value any further but also says that I did have some contracted out SERPS. I think this means that I don't need to do anything but a colleague (same age) disagrees with me and thinks that the £230.25 is what we would get if we hadn't had any payments contracted out. Am I right? 

If your pension forecast clearly states you have already achieved the full £230.25 then that is what you will get.  Any contracted out service and deductions are already factored into the amount you see.  At April 2016 you were given the higher of the new or old calculations and any post 2016 contributions added to that amount and could easily offset any contracted out reduction and with only 34 years total your old rules was higher than the same new rules full amount anyway. It is complex but easy to work out exactly how you arrived at where you are if you want to know.

xylophone

At 6/4/16 (inception of NSP), two calculations were done for those under SPA in order to establish each individual's starting (foundation) amount of NSP.

At that date the  full old Basic SP was £119.30 and the new Full NSP was £155.65.

The starting amount was the higher of

(a) OLD RULES

{National Insurance Qualifying Years/30 (max) x full basic} + {Additional State Pension (Grad/SERP/S2P) - (if applicable) Deduction for Contracting Out)}.


(b) NEW RULES

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

The deduction was used on this occasion only to establish the starting amount.

Each individual was in one of three positions

(1) Starting Amount equal to full NSP.

(2) Starting amount more than full NSP (in which case there would be a protected payment , being the amount over full NSP))

(3) Starting amount less than full NSP.

In the case of (1) and (2), even though (if under SPA, employed and earning the requisite amount) the individual would continue to pay NI, he could not improve his starting amount - this would revalue under the "triple lock" (full NSP amount)/CPI (protected payment).

In the case of (3), it was possible to improve the starting amount up to (but not in excess of) a full NSP by NI contributions or credits.

Take for example a person in (3) under SPA, still working and contributing (or credited ) NI - the qualifying years thus created could improve the starting amount up to full NSP.

As in the case of (1) and (2), once full NSP was reached, he would continue to pay NI as described.

You will see that it is perfectly possible to have contracted out and yet qualify for full NSP.

Below is old but worth a look.


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