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Voluntary NI contributions either side of 2016

JohnB
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Voluntary NI contributions either side of 2016

#247224

Postby JohnB » August 27th, 2019, 11:52 am

I'm 51, FIREd and have 28 full NI years before the end of 2016 tax year, 1 afterwards. I've just had confirmation that I can pay class 2 for most of the 2 years I was abroad in 2007-8, which is so cheap (£156 and £321) its a no brainer, so after payment I'd have 30 years before. Now I could also pay £405 of class 3 for 2009, and obviously a series of years from 2018 afterwards at £741 and higher

So my question is whether it is ever worth having more than 30 pre-2016 years, and what is the pension boost for each post 2016 year if you do? My COPE is £34.

(I wrote a spreadsheet about this in February, shame I can't follow it now)

mc2fool
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Re: Voluntary NI contributions either side of 2016

#247250

Postby mc2fool » August 27th, 2019, 1:48 pm

JohnB wrote:I'm 51, FIREd and have 28 full NI years before the end of 2016 tax year, 1 afterwards. I've just had confirmation that I can pay class 2 for most of the 2 years I was abroad in 2007-8, which is so cheap (£156 and £321) its a no brainer, so after payment I'd have 30 years before. Now I could also pay £405 of class 3 for 2009, and obviously a series of years from 2018 afterwards at £741 and higher

Ok, first of all I'm not sure where you get the £321 & £405 figures from, but the "pay at the original rate for the tax year" deal for pre-2016 voluntary NICs expired on 5-Apr-2019.

From the beginning of this tax year all pre-2016 voluntary NICs cost £3/£15pw for class 2/3 respectively, making £156/£780 for the year. https://www.gov.uk/voluntary-national-insurance-contributions/rates

So my question is whether it is ever worth having more than 30 pre-2016 years, and what is the pension boost for each post 2016 year if you do? My COPE is £34.

Is it ever? Well, sometimes yes, it depends on the exact circumstances and numbers.

However, for someone who already has 30-34 pre-2016 years any additional pre-2016 year can only at best increase the 2016 "starting amount" by the same amount as any post-2016 NICs (as it'll affect the new state pension figure for the starting amount), being by currently £168.60/35 = £4.82pw.

So, as there is now no longer any cost advantage to buying pre-2016 NICs, and you have plenty of time to make further NICs before state pension age, I'd suspect it's just not worth faffing with pre-2016 NICs now.

However, if you'd like to post your current state pension forecast amount (assuming you've got an up-to-date forecast), we can run the figures just to be doubly sure.... :D

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Re: Voluntary NI contributions either side of 2016

#247254

Postby JohnB » August 27th, 2019, 2:15 pm

The numbers come from HMRC, the £321 is a combination of some weeks at £3, others at £15, as they know when I returned to the UK, and calculate pro-rata. The £405 is for a year where I paid class 3 for some of the year.

If after 30 years a pre-2016 year is the same as a post 2016 one, then I'd be inclined to buy the former for £405 than the latter at £780.

I have a forecast, but its muddled because its currently a 28/1 split. Perhaps its best if I pay the 2 obvious years now, and get a new forecast when they are registered, so I can see their impact. I know the helpline would rattle off hypotheticals from their screens, but I doubt they can do combinations.

I don't expect to work again, but I agree that once the 2008 year expires, there is no point topping up until near retirement.

Thanks for your help.

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Re: Voluntary NI contributions either side of 2016

#247269

Postby mc2fool » August 27th, 2019, 2:51 pm

JohnB wrote:The numbers come from HMRC, the £321 is a combination of some weeks at £3, others at £15, as they know when I returned to the UK, and calculate pro-rata. The £405 is for a year where I paid class 3 for some of the year.

Ah, ok I see. :)

If after 30 years a pre-2016 year is the same as a post 2016 one, then I'd be inclined to buy the former for £405 than the latter at £780.

What I said was that any additional pre-2016 year after 30 can only at best give the same increase as a post-2016 one (depending on the exact circumstances and numbers).

Actually (it's hot, brain not working at full speed ;)), I think with a COPE of £34 it's definitely not worth you adding another pre-2016 year.

With the 30 pre-2016 years your 2016 "starting amount" will be the higher of (new) (£155.65 * 30 / 35) - £34 = £99.41 and (old) (£119.30 * 30 / 30) = £119.30 plus any Additional State Pension.

So, adding another pre-2016 year won't help. (Note, the starting amount calculations are done in 2016 figures and then revalued for increases since.)

JohnB wrote:I have a forecast, but its muddled because its currently a 28/1 split. Perhaps its best if I pay the 2 obvious years now, and get a new forecast when they are registered, so I can see their impact.

Good idea :D.

As a sort of check, I figure your current forecast (assuming you got it this tax year) should be...

(£119.30 * 28 / 30) = £111.35 plus ASP, revalued to £120.57 plus ASP, and with your additional post-2016 year a total of £125.39 plus ASP. Does that tally with your figures?

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Re: Voluntary NI contributions either side of 2016

#247418

Postby JohnB » August 28th, 2019, 9:18 am

mc2fool wrote:
JohnB wrote:
As a sort of check, I figure your current forecast (assuming you got it this tax year) should be...

(£119.30 * 28 / 30) = £111.35 plus ASP, revalued to £120.57 plus ASP, and with your additional post-2016 year a total of £125.39 plus ASP. Does that tally with your figures?


Today it says

Estimate based on your National Insurance record up to 5 April 2018: £144.55 a week
Forecast if you contribute another 5 years before 5 April 2034: £168.60 a week

So not really, as I don't think I have any ASP. At least I've a course of action for the next few months. Your help navigating this minefield is much appreciated.

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Re: Voluntary NI contributions either side of 2016

#247443

Postby mc2fool » August 28th, 2019, 11:12 am

JohnB wrote:Today it says

Estimate based on your National Insurance record up to 5 April 2018: £144.55 a week
Forecast if you contribute another 5 years before 5 April 2034: £168.60 a week

So not really, as I don't think I have any ASP.

You must have as it's just not possible to get to £144.55pw with your figures without some ASP.

Even if you were totally under the new scheme and you had no COPE at all, then with 29 years the most the first figure could be would be: £168.60 * 29 / 35 = £139.70. And with 28 years under the old scheme and no ASP it'd be £129.20 * 28 / 30 = £120.59, plus 1 new year at £4.82 = £125.41.

I figure you have a 2016 ASP of £17.69, giving you a 2016 starting amount of £129.04, revalued to £139.73 today, plus the £4.82 from your one post 2016 year.

I suggest you give them a call and ask for the breakdown of how the £144.55 was arrived at, for your own clarity and just to check there isn't any mystery factor that might affect your choices. ;)

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Re: Voluntary NI contributions either side of 2016

#247465

Postby JohnB » August 28th, 2019, 12:19 pm

I believe the £34 COPE figure, as I was contracted out manually for 3 years in the private sector in the late 80s, and probably for the 10 years when I worked in the civil service in the 80s-90s. I've never made any voluntary NI contributions, and only claimed unemployment benefit for 6 months, no other benefits, so I can't see how any extra payments could have come in. After that I was either abroad or working as a contractor or employee using salary sacrifice to be paid minimum wage, so very little NI would have been paid.

A 3 year old schedule has a record of class 1 NICs, but the class 2 and voluntary class 3 NIC columns are all 0

So are the magic words to ask: "Additional State Pension, "Second State Pension" and "SERPS"?

A mystery to unravel, once I've brought down the Government....

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Re: Voluntary NI contributions either side of 2016

#247515

Postby mc2fool » August 28th, 2019, 2:22 pm

JohnB wrote:I believe the £34 COPE figure, as I was contracted out manually for 3 years in the private sector in the late 80s, and probably for the 10 years when I worked in the civil service in the 80s-90s. I've never made any voluntary NI contributions, and only claimed unemployment benefit for 6 months, no other benefits, so I can't see how any extra payments could have come in. After that I was either abroad or working as a contractor or employee using salary sacrifice to be paid minimum wage, so very little NI would have been paid.

Ah, but being contracted out doesn't necessarily mean that you won't get any Additional State Pension -- even if you were never contracted in.

The way the ASP is calculated is that they figure out your gross ASP, as if you'd never been contracted out, and then they subtract a contracted out deduction (COD), which is the guaranteed minimum pension (GMP) that will be provided by your contracted out pension scheme, to arrive at your net ASP, which you will receive and is what people mean when they talk about just "ASP". Gross ASP - COD = (net) ASP.

However, while the idea of contracting out was that the pension scheme would pay you what the state would have (i.e. GMP would be the same as gross ASP, so net ASP would be zero), while the gross ASP is revalued in deferment by national earnings, pension schemes had a choice of methods for revaluing accrued GMP rights, only one of which was the same as that used for the ASP! The practical upshot of which is that up to 1997 the gross ASP and GMP/COD could be revalued at different rates, so gross ASP minus COD can be non-zero. (In fact, it can be negative as well as positive, but the net ASP is always floored at zero.)

It's complicated, and that's probably more than you wanted to know. :D But if you really want to know the ins and outs of it, see here: https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN02674

A 3 year old schedule has a record of class 1 NICs, but the class 2 and voluntary class 3 NIC columns are all 0

Umm...do you not have online access to your pension forecast and NIC record? If not, start here: https://www.gov.uk/check-state-pension

So are the magic words to ask: "Additional State Pension, "Second State Pension" and "SERPS"?

You could just ask that, but I'd say it'd be better to ask for a breakdown of how your 2016 starting amount was arrived at. In my experience and from reports from others it's unlikely they will get into gross ASPs and CODs but will refer just to (net) "ASP". The figures you should get from them are (hopefully ;)):

Old system -- basic state pension ((£119.30 * 28 / 30) = £111.35), plus additional state pension (I reckon £17.69) = £129.04
New system -- single (new) state pension ((£155.65 * 28 / 35) = £124.52), minus COPE (£34) = £90.52

So your 2016 starting amount should be £129.04, which will be revalued to £144.55 this year. Let's see what they say....!

BTW, if you'd like a further probably-more-than-you-wanted-to-know, the COPE is made up of the COD (as above) for being contracted out up to 1997 and a rebate derived amount (RDA) for being contracted out from 1997, so if you haven't been contracted out since then then your COPE is your COD.... :D

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Re: Voluntary NI contributions either side of 2016

#247518

Postby mc2fool » August 28th, 2019, 2:48 pm

mc2fool wrote:So your 2016 starting amount should be £129.04, which will be revalued to £144.55 this year.

Sorry, that should read, which will be revalued to £139.73. The post 2016 year you have takes it up to £144.55.

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Re: Voluntary NI contributions either side of 2016

#247522

Postby JohnB » August 28th, 2019, 3:01 pm

My head is really spinning now. The biggest frustration I've had with the helpline is they clearly have a very clever console in front of them with all these numbers, but they refuse to actually send you a detailed printout, you have to ask just the right questions, and they will rattle off numbers in boxes, which you have to copy down, and ponder when you come off the call.

I quoted the 2015 paper copy because it had all those spreadsheet columns. The modern online service just has "full year" which when opened up says "Full year You have contributions from Paid employment: £1,222.23 National Insurance credits: 16 weeks", no indication of class.

A 2008 pension forecast has an additional state pension sum of 4.55, but that line has vanished in newer reports, perhaps that has become £17 by now. Goodness knows what the GMP was for a software house money purchase scheme in the 80s or the Met Office DB scheme in the 90s.

Clearly there is no way any mortal could ever challenge their calculations.

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Re: Voluntary NI contributions either side of 2016

#247547

Postby mc2fool » August 28th, 2019, 4:44 pm

JohnB wrote:My head is really spinning now. The biggest frustration I've had with the helpline is they clearly have a very clever console in front of them with all these numbers, but they refuse to actually send you a detailed printout, you have to ask just the right questions, and they will rattle off numbers in boxes, which you have to copy down, and ponder when you come off the call.

Well hopefully I've given you an idea of which questions to ask. :D

I quoted the 2015 paper copy because it had all those spreadsheet columns. The modern online service just has "full year" which when opened up says "Full year You have contributions from Paid employment: £1,222.23 National Insurance credits: 16 weeks", no indication of class.

No, in the continuing dumbing down of presented information it doesn't say. It does however say "Voluntary: 52 weeks" if that's the case.

A 2008 pension forecast has an additional state pension sum of 4.55, but that line has vanished in newer reports, perhaps that has become £17 by now. Goodness knows what the GMP was for a software house money purchase scheme in the 80s or the Met Office DB scheme in the 90s.

Yet more dumbing down. Gross ASP is increased by what are called section 148 orders, which specify the increases in national earnings. The 2016 one gives an increase from 2008 to 2016 of 20.4%, so that alone doesn't explain how to get to £17.69 but remember the numbers we are looking at (the £4.55 & £17.69) are net ASP, so the GMP/COD change across the period is a factor too.

Contracting out with money purchase (defined contribution) schemes didn't start until April 1988. (1978 for DB schemes.) You should be able to ask your pension schemes for a statement, which should (in the DB case) show the GMP at your time of leaving, and you can ask them which revaluation method they used and figure its value at 2016 (they may even provide that).

However, while you should at some point, do that, that side is pretty cryptic and you'd be best, for now, just to get the four numbers that went into your 2016 starting amount calculation: basic state pension amount, (net) additional state pension amount, single (new) state pension amount, COPE.

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Re: Voluntary NI contributions either side of 2016

#247548

Postby JohnB » August 28th, 2019, 4:50 pm

Of course my MPS scheme was with Equitable Life.... I think I chose a haircut on the value to avoid the endless stream of administration letters. I transferred to Standard Life, then Avivia, then HL... At least I've not lost any pensions, unlike many I suspect.


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