State pension topup conundrum

[eventide]

This question started on the FIRE board but I've moved it to a separate topic. It's related to an incomplete NI record but with options to buy back years, and highlights to me the pretty complex nature of the state pension, even if on the face of it £159.55 a week is a simple headline.

Facts:

I am 50
So far, 21 full qualifying NIC years from 1983/4 to 2007/8
No NICs from 2008/9 to 2015/6 (8 years)
I have the right to buy these 8 years via voluntary contributions ranging from £689 to 733.20 (total £5509.40)
This right expires on April 5 2023, but the prices are only fixed until 5 April 2019
The State pension forecast is presently £86.18/week based on the 21 years
The State forecasts I can still get to £159.55 if I contribute another 17 years before 2034.
The date of this forecast and data on NICs is very recent
The pensions service indicates I have a contracted out pensions equivalent (COPE) of £30.66 as a result of some contracted out employment within the 21

Questions

I don't understand why it will amount to 21+17 = 38 years of total contributions to get the full pension (if indeed a full pension is available)
I don't understand why 21 years of contributions is only £86.18 so far (£4.10 per year)
It looks like they are saying work the NIC minimum for 17 years from 50 to 67 and I will be topped up to the full amount
I don't know whether if I make the voluntary contributions for the 8 years now, these will add to the current forecast of £86.18
I don't know if the £30.66 reduces the max state pension I can get in any event to (£159.55-£30.66) = £128.89

The pensions service staff are unable to answer these questions well

Current plan

I plan to buy the 8 years before 5 April 2019, if I can be certain this will get me 8*4.56 per week from 67 onwards
I can arrange to work or do more topups year-on year from 2017/8 onwards to get to the max

All of this predicated on a 67 payment start date which can/will change of course

[pochisoldi]

This question started on the FIRE board but I've moved it to a separate topic. It's related to an incomplete NI record but with options to buy back years, and highlights to me the pretty complex nature of the state pension, even if on the face of it £159.55 a week is a simple headline.

Facts:

I am 50
So far, 21 full qualifying NIC years from 1983/4 to 2007/8
No NICs from 2008/9 to 2015/6 (8 years)
I have the right to buy these 8 years via voluntary contributions ranging from £689 to 733.20 (total £5509.40)
This right expires on April 5 2023, but the prices are only fixed until 5 April 2019
The State pension forecast is presently £86.18/week based on the 21 years
The State forecasts I can still get to £159.55 if I contribute another 17 years before 2034.
The date of this forecast and data on NICs is very recent
The pensions service indicates I have a contracted out pensions equivalent (COPE) of £30.66 as a result of some contracted out employment within the 21

Questions

I don't understand why it will amount to 21+17 = 38 years of total contributions to get the full pension (if indeed a full pension is available)
I don't understand why 21 years of contributions is only £86.18 so far (£4.10 per year)

At some point you were contracted out. This reduced the amount of pension earned for the years upto April 2016. This is what your "COPE" figure covers.
The new system allows you to continue earning more pension (1/35th of the full amount per year's contributions/credits) until you reach the amount of full state pension. So in your case, yo

It looks like they are saying work the NIC minimum for 17 years from 50 to 67 and I will be topped up to the full amount

Correct

I don't know whether if I make the voluntary contributions for the 8 years now, these will add to the current forecast of £86.18

If you make another 8 years contributions then the forecast will increase to £86.16 + (8/35)*159.55
Yes they will - then you will only need 9 years (going forward) to earn.

I don't know if the £30.66 reduces the max state pension I can get in any event to (£159.55-£30.66) = £128.89

The "pension earned so far" figure already takes into account the contracted out reduction.
That's why you need 38 years of contributions instead of the (now) standard 35 years to get the full state pension.

The pensions service staff are unable to answer these questions well

Current plan

I plan to buy the 8 years before 5 April 2019, if I can be certain this will get me 8*4.56 per week from 67 onwards
I can arrange to work or do more topups year-on year from 2017/8 onwards to get to the max

All of this predicated on a 67 payment start date which can/will change of course[/quote]

Note that I wouldn't put it past the government to increase the cost of buying additional years, so if you have the money, it may be cheaper to buy some additional years (i.e. the most expensive ones) before 5th April 2018, when the cost may increase, rather than leave the money in a savings account...

PochiSoldi

[mc2fool]

It's related to an incomplete NI record but with options to buy back years, and highlights to me the pretty complex nature of the state pension, even if on the face of it £159.55 a week is a simple headline.

The complexity really comes from the "transition" rules for changing from the old to new state pension systems for people (like most of us, including you) who contributed under the old system but will be retiring after the new system came in (6-Apr-2016). The key thing to understand is that a "starting amount" as of your NI contributions to 5-Apr-2016 is what the transition to the new state pension for you is calculated from. Basically you get the better of the old and new system calculations for your NICs to 6-Apr-2016 for the starting amount going forward.

The following reading might help you understand the system:
https://www.gov.uk/new-state-pension/how-its-calculated
https://www.gov.uk/government/publicati ... -explained

Also, I wrote up how the calculations under the old and new systems, and the "starting amount" at April 2016, work on TMF which you may find useful background. The numbers have changed since (it's now (£122.30/30 = ~£4.08 for old and £159.55/35 = ~£4.56 for new), and COD+RDA for the new system is now called the COPE, oh, and where it says "current" state pension it, of course, would now read "old" -- but otherwise the explanation is still good . It's archived at http://web.archive.org/web/201701120049 ... 01655.aspx[/quote]

Now (assuming you've read those and I don't have to explain the following in full detail ... ), to take your figures, at 5-Apr-2016 you had 21 qualifying years, so your "starting amount" as of 6-Apr-2016 will be calculated as:

Under old state pension rules you'd get £122.30 * 21 / 30 = £85.61 + any net Additional State Pension you've accrued
Under new state pension rules you'd get (£159.55 * 21 / 35) - £30.66 = £65.07

So, as the old system figure is the higher (even without ASP) that's what would be used, and as you've actually been given a quote that is slightly higher than that we can deduce that you've also accrued a net ASP of a grand 55p!

Now, if you fill the missing 8 years 2008/9 to 2015/6 then:

Under old state pension rules you'd get (£122.30 * 29 / 30) + 0.55p = £118.77
Under new state pension rules you'd get (£159.55 * 29 / 35) - £30.66 = £101.54

So, again, the old system figure is the higher and so if you fill those pre-2016 years you'll have a "starting amount" as of 6-Apr-2016 of £118.77.

Now, another part of the transition rules is that, irrespective of how many years you already have, if your "starting amount" as of 6-Apr-2016 is less than the full new state pension amount, additional years from 6-Apr-2016 onwards will get you an extra £159.55/35 = ~£4.56 per year, until you either reach the full £159.55 or state pension age, whichever comes first (the last year you can contribute for is the tax year before the one in which you reach state pension age).

So, in your case, if you make all the pre-2016 contributions, you'll then have £159.55 - £118.77 = £40.78 to go to get to the full new state pension amount. At ~£4.56/year that makes 8.95 more years, and you can't make part year contributions, so it's 9 more years of 2016/17 onwards NICs to go to get the full £159.55.

However, there is another way you can do it. Your current "starting amount" as of 6-Apr-2016 is £86.18, which is £73.37 short of the full new state pension, and you could (almost) get to that by making 16 years of only 2016/17 onwards NICs. (It would actually require 16.09 years, so 16 years would get you to £159.12, which is 43p short). Of course, current and future years' voluntary NICs are more expensive than those for previous years (at least until 5-Apr-2019) and I'll leave it as an exercise for the reader as to which combination will be cheaper overall

[eventide]

Wow. What a response. Thank you very much. All other things being equal*, filling in the 8 years is a no brainer, and contributing as and when to get to the full amount.


*main risk being the state pension getting means tested away

[mc2fool]

Wow. What a response. Thank you very much. All other things being equal*, filling in the 8 years is a no brainer, and contributing as and when to get to the full amount.

Yes, even without doing the cost of 8+9 vs 16 comparison, I think that's what I'd do too.

One thing to note, having until 5 April 2023 to pay voluntary NICs for gaps from 2006/7 to 2015/6, with costs frozen until 5 April 2019, is exceptional and a "special offer" as part of the transition from the old to new systems.

The usual state of affairs is that you can pay voluntary NICs only for the past 6 tax years and the price is only frozen for two (thereafter rising to the current year's cost), and I think it's reasonable to figure that's what they'll revert to for 2016/17 onwards NICs. Check the .gov website in March each year

[mearnsfool]

The six year maximum rule re buying back missed NI years in this case is suspended only for the years before April 2016, for those retiring after 6th April 2016. Paying for missed years after April 2016 will go back to the 6 year rule.

If the answer to the next question is a negative. I would buy all of the missed years that are on special offer that is available until 2019.

Now we have all let the poster down buy not asking one question re class 2 contributions.

The major unfairness of the UK pension that hits woman and disabled people harder than the majority of men is that you can have two jobs paying circa £5,700 each per year but you get no NI contribution for that year. Round figure if you earn exactly the Lower Earnings Limit say £5,900 per year in one job you get a years NI contribution at no cost to you.

Historically the way round this or for Brits working abroad was to pay Class 2 contributions approx £2.80 per week.

If the poster was say doing some paid for dog walking for others or working part time in their own self employment, say house sitting etc etc they may well be able if this is the case to get these missed contributions via this avenue if the poster was doing something similar in those missed years.

I will leave the poster a job to do in looking at details of Class NI 2 contributions.

We are advised but it has not been brought back to parliament that Class 2 contributions may no longer be available for self employed people for work after April 2018.

[JMN2]

Excellent thread, my case is almost similar to eventide's. 1995/96 wasn't a full year but that I can't top up anymore, next not full is 2007-8 which only needs £278.25 to top up. From then on empty years, top up ranging from £622 to £733 totaling £6520. 14 full years making £74.62 so far, COPE £10.3.

Sending a cheque for 2007-8 to start with.

[chas49]

We are advised but it has not been brought back to parliament that Class 2 contributions may no longer be available for self employed people for work after April 2018.

It has been announced today that Class 2 abolition will be delayed to April 2019

https://twitter.com/paullewismoney/stat ... 4333012992

[JMN2]

Excellent thread, my case is almost similar to eventide's. 1995/96 wasn't a full year but that I can't top up anymore, next not full is 2007-8 which only needs £278.25 to top up. From then on empty years, top up ranging from £622 to £733 totaling £6520. 14 full years making £74.62 so far, COPE £10.3.

Sending a cheque for 2007-8 to start with.

14 years making £74.62. Looking at the old system £122.30 * 14/30 = £57.07 and new £159.55 * 14/35 -£10.30 = £53.52. What could be the difference?

Also, if I missed topping up 95/96 then I assume I can't make the full £159.55?

Insufficient years 11, 10 of those toppable.

[eventide]

Excellent thread, my case is almost similar to eventide's. 1995/96 wasn't a full year but that I can't top up anymore, next not full is 2007-8 which only needs £278.25 to top up. From then on empty years, top up ranging from £622 to £733 totaling £6520. 14 full years making £74.62 so far, COPE £10.3.

Sending a cheque for 2007-8 to start with.

All well and good but bear in mind if you have a financial profile which suggests you might be means tested off the state pension when you finally hit retirement age, please bear in mind the risk that the regs will have changed so as, indeed, to deny you any benefit from this cheque contribution. Put another way, are you certain they wont f*** you for all your state pension and just keep the NI top up anyway. It is not an easy one to judge, but the pressure on the unfunded state pension system is huge and something might give

[JMN2]

Excellent thread, my case is almost similar to eventide's. 1995/96 wasn't a full year but that I can't top up anymore, next not full is 2007-8 which only needs £278.25 to top up. From then on empty years, top up ranging from £622 to £733 totaling £6520. 14 full years making £74.62 so far, COPE £10.3.

Sending a cheque for 2007-8 to start with.

All well and good but bear in mind if you have a financial profile which suggests you might be means tested off the state pension when you finally hit retirement age, please bear in mind the risk that the regs will have changed so as, indeed, to deny you any benefit from this cheque contribution. Put another way, are you certain they wont f*** you for all your state pension and just keep the NI top up anyway. It is not an easy one to judge, but the pressure on the unfunded state pension system is huge and something might give

Quite right but my reasoning is the following: 1. that one top up is so small compared to all the others so I get one extra year "cheaply" and must have already in the past contributed some money towards it 2. I can use it as a brexit insurance if I ever get trouble due to my EU citizenship."deportation? I just topped up state pension and all"

Most likely I won't top up any more. But would be very interested to know why those formulas that worked in your case don't seem to work in my case. Since 00's I have received pension forecasts with 14 years and around £73-74 weekly pension so far, but the formula gives answers around £50-60.

[mc2fool]

14 years making £74.62. Looking at the old system £122.30 * 14/30 = £57.07 and new £159.55 * 14/35 -£10.30 = £53.52. What could be the difference?

Also, if I missed topping up 95/96 then I assume I can't make the full £159.55?

Insufficient years 11, 10 of those toppable.

You've forgotten the Additional State Pension component for the old system calculation which, given the figures above, would be £17.55. So it seems that of the 11 years you worked you were contracted out for some (hence the COPE) and not for others (hence the ASP).

As for if you can reach the full new state pension amount ... if you make up the years 2007-8 to 2015-16 (inclusive), an additional 9 years, you'll then have 23 years at 5-Apr-2016 and so:

Under old state pension rules you'd get (£122.30 * 23 / 30) + £17.55 = £111.31
Under new state pension rules you'd get (£159.55 * 23 / 35) - £10.30 = £94.55

So you'll have a "starting amount" as of 6-Apr-2016 of £111.31, and any further years from 2016-17 onwards you add will increase that by £159.55/35 = ~£4.56 per year. It'll take 11 further years from 2016-17 to get to the full £159.55, so you'll only be able to add hem all if you reach state pension age in tax year 2028-9, or later.

[JMN2]

14 years making £74.62. Looking at the old system £122.30 * 14/30 = £57.07 and new £159.55 * 14/35 -£10.30 = £53.52. What could be the difference?

Also, if I missed topping up 95/96 then I assume I can't make the full £159.55?

Insufficient years 11, 10 of those toppable.

You've forgotten...

Thank you very much!

[JMN2]

As to the timeline,
early November sent a cheque and a covering letter to HMRC
28.11 cheque cashed
27.12 personal tax account updated.