State Pension and NI Cont advice please

Upwind

I have recently left the Armed Forces having completed 24 years. Unfortunately, whilst in the forces, I paid little attention to my pay, Tax or NI contributions and now that I have left I am seeking some advice with regard to NI contributions in relation to my Pension. I heard/read somewhere that I am required to contribute something like 30 years in NI contributions in order to qualify for a full state pension. The company I have joined are asking me whether I want to 'opt out' and cease my contributions in favour of their pension scheme. Having already contributed around 24 years worth of NI contributions, I am wondering whether it would be better to continue this on until the 30 year point, before then opting out and either taking up the company policy or starting my own separate policy. This area appears a bit vague to me and I wondered if anyone with more knowledge could enlighten me. Also, am I able to find out for definite how many years that I have 'officially' paid NI contributions into the pension pot?

I would be grateful of any advice that could be offered. Thanks

jonathon_hart

Ok. Opting out only applies to the State Second Pension - which is based on earnings not year (it used to be called the State Earnings Related Pension). The 30 year rule applies to the Basic State Pension which you cannot opt out of.

If you are want to know about your current entitlement see the sticky at the top of the page on NI Shortfall, that explains how to get a forecast.

Upwind

Thanks Jonathon.

From what you have said, I am assuming that once I have accumulated 30 years towards the Basic Pension, I do not need to make any further contributions in order to qualify for the maximum Basic State Pension.

How does the State Second Pension come into things? Is it something I need to sign up to or will it start once my earning reach a certain level?

I have noted your advice on getting a forecast and will have a look at the thread you indicated.

jonathon_hart

Correct although as it is part of your (compulsory!) NI payments you will keep contributing.

You automatically get contributions as long as you have sufficient earnings (which is somewhere around £5k to £5.5k can never remember exactly). It is additional pension from the State on top of the Basic state pension. See here for more info
http://www.thepensionservice.gov.uk/atoz/atozdetailed/addstatepen.asp

Upwind

Thanks again Jonathon

The link is very useful although I am still no further to deciding the best option for me. It may be easier if I explained my circumstances so you could get a clearer picture.

My current situation is as follows:

I am single guy with no dependants. I am paid around £16,000 p.a. which is supplemented by a military pension of around £500.00 pcm. This pension is index linked and will increase at age 55 (13 years time). I have a small mortgage and some modest savings. I don’t envisage that my wage will increase dramatically, however; I can see me remaining in my current job (touch wood) for some years.

My current company operate a stakeholder pension scheme and I am informed that they would match up to 5% contributions – which I presume I would get tax relief on - although I am not sure how this works either!

Therefore my question is; should I contract out and leave the additional State Pension scheme and join my company’s private stakeholder pension scheme instead or, stick where I am?

Any advice would be grateflly received

terryw

The tax relief is given automatically i.e your tax is calculated on your pay after your pension contributions. So no problem there.

Which is best? You pays your money and takes your choice! Personally I would go for the company scheme. Advantage is the additional conts paid by your employer and wise investment should build it up to a tidy pot by retirement.And in theory should beat govt scheme. And I don't trust government pension schemes.
Disadvantages.......talk to Daily Mirror pensioners! Also you may feel handcuffed to the firm just because of the pension at the end of the day.

All in all, personally the firm's scheme would be my option. But as I said, you pays your money and you takes your choice.

jonathon_hart

The contribution you made will be deducted from you pay and then you pay tax on the rest (as terryw says) the matching form the company is paid direct by the company so never enters your salary packet (or tax bill). We can't give you individual advice, and I'm not an IFA anyway, so I can't give you a direct answer, sorry.