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Financial implications of taking 3 months upaid leave

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Andy46
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Financial implications of taking 3 months upaid leave

#459826

Postby Andy46 » November 21st, 2021, 1:23 pm

Hi,

The company i work for allows staff to request to take up to 6 months unpaid leave, once every 5 years. I'm considering requesting 3 months.

What would be the financial implications of doing so?

Due to paying less income tax, it looks like a no brainer as I roughly worked out that I would only actually see a loss of approx 1 months net pay. What happens with National Insurance and pension contributions? Will i simply have to work 3 months extra after the standard retirement date to get the same as had I not taken 3 months off? If so then i'm sure I can manage without having to do that.

Thanks
Andy

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Re: Financial implications of taking 3 months upaid leave

#459853

Postby quelquod » November 21st, 2021, 3:27 pm

As things stand you need 35 full years of contributions to qualify for the full state pension. That’s a good bit less than many people work anyway, especially if you plan on working up to your ‘standard retirement date’ so depending how long you’ve worked already it might make no difference to you. It’s pro-rated anyway so 3 months is pretty insignificant.

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Re: Financial implications of taking 3 months upaid leave

#459857

Postby richfool » November 21st, 2021, 3:39 pm

You can check your NI contributions record after the financial year end and pay any shortfall in contributions to ensure that that year is a qualifying year.

Mc2fool is an expert on this subject.

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Re: Financial implications of taking 3 months upaid leave

#459861

Postby chas49 » November 21st, 2021, 3:51 pm

This article by Steve Webb (former Pensions Minister) seems to cover your question. (https://www.thisismoney.co.uk/money/pen ... d-out.html)

Extract: (written in 2020, so using the relevant limits for 2019/20)

For a year of your working life to be a ‘qualifying year’ towards your state pension, you have to have paid (or been credited) with NI contributions on earnings equal to 52 times the weekly lower earnings limit.

As noted above, periods when you are earning below the lower earnings limit do not count towards this target.

But the good news is that weeks (or months) when you are earning more than the lower earnings limit help to make up for weeks (or months) when you were not earning (or earning below the LEL).

To give a simple example, suppose that you have a year in which you do no paid work for 26 weeks and then you do 26 weeks at an earnings level of £236 – double the lower earnings limit.

For the year as a whole, you have qualifying earnings of 52 times the LEL and this is therefore a qualifying year.



So provided you earn at least 52 * £120 (the LEL for 2021/22) (i.e. £6240) in the relevant year, you'll have a qualifying year for State Pension purposes, and you won't need to pay voluntary NICs for that year.

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Re: Financial implications of taking 3 months upaid leave

#459887

Postby AF62 » November 21st, 2021, 6:00 pm

chas49 wrote:So provided you earn at least 52 * £120 (the LEL for 2021/22) (i.e. £6240) in the relevant year, you'll have a qualifying year for State Pension purposes, and you won't need to pay voluntary NICs for that year.


Can confirm this is the case from recent experience; although I retired and stopped working on 31 December, the amount earned (and paid in NI) up to that point meant that although I was not working (or paying NI) for the rest of the year, that paid up to 31 December meant it still counted as a full qualifying year for State Pension.

quelquod wrote:As things stand you need 35 full years of contributions to qualify for the full state pension. That’s a good bit less than many people work anyway, especially if you plan on working up to your ‘standard retirement date’ so depending how long you’ve worked already it might make no difference to you.


That depends if someone was in a contracted out pension up to 2016 when the New State Pension was introduced, since if they were then they might need more than 35 years and in particular years after 2016 to get the full pension - the maths isn’t straightforward but the government pension website will tell you how many years you need to still pay NI for to get a full pension.

Andy46
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Re: Financial implications of taking 3 months upaid leave

#459941

Postby Andy46 » November 21st, 2021, 10:54 pm

richfool wrote:You can check your NI contributions record after the financial year end and pay any shortfall in contributions to ensure that that year is a qualifying year.

Mc2fool is an expert on this subject.


Hi

Thanks. I've just logged into the government website and it says i only need to contribute 9 more years to get the state pension of £179.60 a week. I'm only 43 and have worked full time since around the age of 17, so have 24? years left until state retirement age. What happens in 9 years then? Will i pay less national insurance?

Thanks

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Re: Financial implications of taking 3 months upaid leave

#459952

Postby UncleEbenezer » November 22nd, 2021, 12:15 am

Andy46 wrote:Thanks. I've just logged into the government website and it says i only need to contribute 9 more years to get the state pension of £179.60 a week. I'm only 43 and have worked full time since around the age of 17, so have 24? years left until state retirement age. What happens in 9 years then? Will i pay less national insurance?

Thanks

The way to pay less NI is to earn less. Which may also, depending on your circumstances, be achieved by earning in a more tax-efficient way (likely to mean sacrificing something else).

But it won't happen just because you've worked more years. The correlation between NI and pension could be politely described as tokenistic, and the correlation between NI and out-of-work benefits can actually be starkly negative. Or could: my knowledge of that pre-dates Universal Credit.

The difference between 9 and 24 years is your opportunity to take a career break. For example, to raise a family.

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Re: Financial implications of taking 3 months upaid leave

#459978

Postby mutantpoodle » November 22nd, 2021, 8:01 am

all above seem to cover the 'pension' aspects

but if I were you I would be watching situation carefully re your job
after all, if an employer can see clearly that he can manage without certain staff, he might consider extending the option!

companies cannot manage for long when overstaffed, if they need to be profitable.....what sector are you in?

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Re: Financial implications of taking 3 months upaid leave

#459982

Postby pje16 » November 22nd, 2021, 8:35 am

Andy46 wrote:Hi
I'm only 43 and have worked full time since around the age of 17, so have 24? years left until state retirement age. What happens in 9 years then? Will i pay less national insurance?
Thanks

Sadly not
I wish that were the case, but come on.... this is the tax world, its not always logical :roll:
PS a minor factor, you would probably lose a quarter of your holidays

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Re: Financial implications of taking 3 months upaid leave

#459999

Postby Andy46 » November 22nd, 2021, 9:22 am

pje16 wrote:
Andy46 wrote:Hi
I'm only 43 and have worked full time since around the age of 17, so have 24? years left until state retirement age. What happens in 9 years then? Will i pay less national insurance?
Thanks

Sadly not
I wish that were the case, but come on.... this is the tax world, its not always logical :roll:
PS a minor factor, you would probably lose a quarter of your holidays


Hi

Oh yes thanks, I was already aware of the loss of annual leave ta.

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Re: Financial implications of taking 3 months upaid leave

#460054

Postby pje16 » November 22nd, 2021, 11:28 am

That's ok Andy46
I was thinking of going down to 4 days a week (for complex financial reasons that I won't go into here)
but it was pointed out to me that being on 80% of my salary i would become more attractive to make redundant
I hadn't thought of the obvious :roll:

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Re: Financial implications of taking 3 months upaid leave

#461856

Postby Andy46 » November 29th, 2021, 3:34 pm

mutantpoodle wrote:all above seem to cover the 'pension' aspects

but if I were you I would be watching situation carefully re your job
after all, if an employer can see clearly that he can manage without certain staff, he might consider extending the option!

companies cannot manage for long when overstaffed, if they need to be profitable.....what sector are you in?


Hi,

Thanks for the advice. I work in the public sector though so honestly can't see that being an issue.

Thanks

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Re: Financial implications of taking 3 months upaid leave

#461980

Postby mutantpoodle » November 30th, 2021, 8:09 am

no if you in the public sector it probably will not be an issue

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Re: Financial implications of taking 3 months upaid leave

#462005

Postby didds » November 30th, 2021, 9:30 am

pje16 wrote:That's ok Andy46
I was thinking of going down to 4 days a week (for complex financial reasons that I won't go into here)
but it was pointed out to me that being on 80% of my salary i would become more attractive to make redundant
I hadn't thought of the obvious :roll:



Is that really the case though? After all by making you redundant then, the employer is only saving 80% overall of what they could save ? Or is it based on the up front cost of a 80% redundancy payment versus 100% and no consideration of the ongoing extra 20% saving afterwards?

that notwithstainding, its not people that are made redundant, but positions.

So if the position is redundant, it doesnt matter if its an 80% or 100% position - its the entire posisition irellevant of how much of a week somebody spends doing it ?

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Re: Financial implications of taking 3 months upaid leave

#462009

Postby Dod101 » November 30th, 2021, 9:38 am

Andy46 wrote:
mutantpoodle wrote:all above seem to cover the 'pension' aspects

but if I were you I would be watching situation carefully re your job
after all, if an employer can see clearly that he can manage without certain staff, he might consider extending the option!

companies cannot manage for long when overstaffed, if they need to be profitable.....what sector are you in?


Hi,

Thanks for the advice. I work in the public sector though so honestly can't see that being an issue.

Thanks


That tells us something surely!

Dod

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Re: Financial implications of taking 3 months upaid leave

#462012

Postby pje16 » November 30th, 2021, 9:44 am

didds wrote:
pje16 wrote:That's ok Andy46
I was thinking of going down to 4 days a week (for complex financial reasons that I won't go into here)
but it was pointed out to me that being on 80% of my salary i would become more attractive to make redundant
I hadn't thought of the obvious :roll:

Is that really the case though? After all by making you redundant then, the employer is only saving 80% overall of what they could save ? Or is it based on the up front cost of a 80% redundancy payment versus 100% and no consideration of the ongoing extra 20% saving afterwards?

that notwithstainding, its not people that are made redundant, but positions.

So if the position is redundant, it doesnt matter if its an 80% or 100% position - its the entire posisition irellevant of how much of a week somebody spends doing it ?


Touch wood I don't think me or my postion will be come redundant, not in the 5 or so years I have left
BUT
Redundancy is based on weekly pay and number of years in the job.
Weekly pay is the average you earned per week in the 12 weeks before you got your redundancy notice.
So if I go down to 80% say next month the fact that I have earned 100% for decades before does not count towards it

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Re: Financial implications of taking 3 months upaid leave

#462015

Postby didds » November 30th, 2021, 9:55 am

pje16 wrote:

So if I go down to 80% say next month the fact that I have earned 100% for decades before does not count towards it



But somebody else is earning 100%. And may have been there less long than you. So the time x avg pay maths doesnt necessarily work against you just because you are now 80%?

And if nobody else does your job, it it becomes redundant it doesnt matter what your average pay and longevity is - its redundant full stop.

I am probably howveer missing something completely :-)

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Re: Financial implications of taking 3 months upaid leave

#462022

Postby pje16 » November 30th, 2021, 10:23 am

i took it from here
https://www.gov.uk/calculate-your-redundancy-pay
and my advice on it was from some who employs people at a large plc firm


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