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NI & Pensions

Black Hole

Black Hole

May contain traces of nut
I have been TRYING to plug some gaps in my past NI record for the last several months - and it's proving to be a soul-destroying process.

On the face of it, it's a no-brainer. For every extra completed year's NI record, it should increase my expected state pension by £227 per year, and a year's voluntary contribution is about £700, so that's the equivalent of investing in a savings account that offers over 30% interest (except the interest payment is deferred, and you can't get the capital back... so the calculation of APR isn't that simple).

I used the Government Gateway to get all my figures (again - the online systems were not ready a year ago), satisfied myself that I knew the exact position with all the changes in entitlement and calculation etc (buggers put my retirement age up a couple of years). Then I rang up the DWP in February:

"Have you got a pensions forecast letter?" What letter? I got my forecast online.
"We recommend you receive a written forecast by post, then call us again and ask to speak to a voluntary contributions expert." OK, send me a letter.

The letter arrived mid-March (several weeks later), and told me nothing I didn't already know (and actually a great deal less).

I got around to ringing them up again today:

I want to speak to a voluntary contributions expert.
"Have you got a pensions forecast letter?" Yes.
"Hold the line, and I'll put you through."

(Completes security check AGAIN!!!)
I want to talk to somebody about completing previous years' NI records.
"Have you got a pensions forecast letter?" Yes. And I know what years are missing in my record.
"You need to ring again after 23rd April, and ask to speak to a voluntary contributions expert."
That's why I've rung you today, because when I went around this loop a couple of months ago I was told the same thing.
"Our new systems should come on-line on 23rd April, so we will be able to advise you better then."
I know what I want to do and all the figures. All I am trying to find out is how to make the top-up payments.
"I can give you the HMRC number for that, but I strongly recommend you speak to an expert first. It could be that your pension will not benefit from completed previous years and only from new years going forward."

WTF??!!

I feel like I'm being pushed from pillar to post, and I've been trying to get this done for months. Will my position change in the mean time?
"Everything is frozen until 5th April 2019."
So I have two years to sort this out?
"Yes."

Bollox. I reckon they've been inundated with enquiries to top up NI records, and don't know how to cope with them so impose delaying tactics.
 
I sympathise with that. I had large gaps in my contributions, as I didn't start paying in until I was almost 25 and stopped working early due to ill health, but found that because of random age related rule changes I had a full contribution. I still can't believe my luck, tempered by my low life expectancy.

My wife also benefitted from another random change, so she also had a full contribution despite a few years part time. Plus, she worked to 65 and increased her pension by 50%.
 
Is there not a limit of just a few years that you can top up your missing N.I with it affecting your pension and payments for gaps in earlier years not giving you any benefit at all? Has that changed? I better check mine too, I just hope that I can apply for the "letter" via the gateway. I have no wish to contact DWP or HMRC over the phone, been there before and wasted too much of my life taking their grand tour of departments.
 
It states on the gov.uk website that "You can usually pay voluntary contributions for the past 6 years.". That would suggest that the maximum top up you can do is six years. Obviously you can volunteer to pay NI in future years. Although, given BH's experience, I think I'd sooner bang my head against a brick wall! You'd think the DWP would welcome punters volunteering to pay them money.
 
Most denied new ‘flat-rate’ state pension
The ‘simple’ system has been branded too complex

Anna Mikhailova
April 16 2017, 12:01am, The Sunday Times

methode%2Fsundaytimes%2Fprod%2Fweb%2Fbin%2F6071c080-2115-11e7-96b2-0db44f1c9704.jpg

George Osborne promised that the new system would be simple and flat rate so people would know what to expect. It is proving to be far from thatPAUL ROGERS

Most people who retired last year did not receive the full new state pension of £155.65 a week, according to the first official figures, obtained by Money. Despite the government giving the clear impression that everyone would get the same amount under the “simple” new rules of its supposedly “flat-rate” system, many have been left feeling short-changed and unfairly treated.

The former pensions minister, Baroness Altmann, criticised the new regime for being “riddled with complexities.”

Just 63,440 people received the full state pension of £155.65 or more in the five months after it was introduced on April 6, 2016, according to data disclosed by the Department for Work and Pensions (DWP) after a freedom of information request by this newspaper.

During the same period, between April 6 and August 31 last year, 153,990 people began claiming the new state pension. More than 90,000 — 59%— received less than the much-anticipated “flat rate”, according to the DWP figures, which are the latest available. This means just 41% of people got the full amount.

The news is a blow to millions of people who might have formed the understandable impression that the new state pension would provide everyone with the same amount.

It is particularly worrying for those approaching retirement whose income might soon be lower than they were expecting, and who have little time to sort out the problem.

When the government revealed the new system, it said anyone who had a full national insurance record would be guaranteed a single-tier flat-rate deal. In his 2011 budget speech, George Osborne, then the chancellor, said the new pension “would be simple; it would be based on contributions; it would be a flat rate, so people know what to expect”.

The system was also supposed to be fairer and easier to understand. In reality, the changes have left many people in the dark.

Altmann said: “The new system is still riddled with the complexities of the old one.”

How it works
You would be forgiven for assuming that a “single-tier, flat-rate state pension” would involve everyone getting the same amount — announced as £155.65 a week, rising to £159.55 this month. Not so.

To get the full amount, you must have accumulated national insurance contributions — or credits — for 35 years (it was 30 years under the old system). If you have less than 10 years of contributions, you will receive nothing. If you have somewhere in between, you will receive a lower proportion. Previously, the state pension consisted of two parts: basic state pension and an additional part, known as the state earnings related pension scheme (Serps) and the state second pension (S2P).

The DWP said: “The new state pension is simpler and clearer, helping people to know what to expect in retirement. Millions stand to gain from the changes, including women and the self-employed, who so often have lost out in the past.”

Who gets less?
Are you confused as to why you did not qualify for the full £155.65? It may be because you do not have the required 35 years of national insurance contributions, or because you spent some of your career “contracted out”.

Contracting out refers to situations where an employer chose to offer a company pension, which in most cases had to provide a retirement pot at least as good as the additional state pension. If you were contracted out, you do not receive the additional state pension and paid a lower rate of national insurance.

In most workplace pension schemes, there was no choice whether you would be contracted out or not. Under the new state pension scheme, contracting out has been abolished.

Altmann said: “The new state pension will generally be reduced for many people if they were contracted out of the national insurance system during their past career. They paid lower national insurance in order to build up part of their state pension in a private pension scheme instead.”

Richard Parkin, head of pensions policy at the fund manager Fidelity International, said: “For somebody starting work today, the system is pretty straightforward. The challenge is for people who have worked under the previous system.

“It will take some time before we get to a position where everybody has the same state pension. Inevitably, there will be winners and losers.”

About 400,000 people reach state pension age each year, the DWP said. By mid-2030, it expects 85% of these to be receiving the full new state pension amount.

Mind the gaps
To maximise your state pension, you should first check the predicted amount you will receive using the government’s website, gov.uk/check-state-pension. You can log in using the passcode you use for self-assessment if you file your tax return online, or use the government’s Verify site: www.signin.service.gov.uk/start.

This will tell you what your expected state pension will be, and when you can expect to start claiming it. The figure is not adjusted for inflation — that is, it tells you how much you can expect to get at the current level. It also has a caveat saying that it is “not guaranteed and is based on the current law”.

It also lets you check your national insurance record to see whether you have any gaps. You can make “voluntary contributions” to fill these in — your online record will tell you how much each year would cost.

Tom McPhail, head of policy at the wealth management company Hargreaves Lansdown, said: “It generally makes sense to fill in gaps in your national insurance history where possible. For some people, it may also be necessary to work later.”

Stay-at-home parents
Osborne changed the rules on child benefit, which used to be paid to every family regardless of their income. Under the new rules, you begin to lose your entitlement to the benefit — £20.70 a week for your first child and £13.70 for each subsequent child — once you earn more than £50,000, and it is withdrawn completely if you earn over £60,000.

For a parent who decides to stay at home and whose partner is not entitled to child benefit because they are a high earner, the stay-at-home parent should still register for the benefit. This lets them continue to accrue pension rights, without paying national insurance.

You can either register but not receive the child benefit, or receive it and pay it back if your partner does earn more than £50,000. You will have to pay a tax charge, known as the high income child benefit tax charge. Details are available at gov.uk/child-benefit-tax-charge.

The charge must be declared on the tax return of the person earning more than the threshold. This has become even more important with the new state pension, as you can no longer use your partner’s national insurance record to boost your own pension.

How much will I get?
According to the new state pension calculator, I am one of the lucky ones — in line to receive the full amount of £159.55, or £8,325 a year, writes Anna Mikhailova. “You cannot improve your forecast any further,” the website tells me, encouragingly. The catch? I won’t see a penny of it until 2054, as the rules stand.

This is despite the fact that my national insurance contributions (Nics) date back to when I was 17 and first started getting paid by The Sunday Times. I continued making contributions while at university as I worked in the holidays. I need only 22 years more to qualify for the full pension.

The calculator, which is easy to use, tells me that if I make a voluntary contribution of £689 by April 5, 2023, I can buy myself another year to top up a student year when I didn’t work full-time.

But there is no point. If I work continuously until my projected retirement date of 2054, I will have paid much more Nics than is necessary to receive a full pension — you only need 35 years’ worth.

I will be penalised again because the state pension age keeps rising. You stop paying Nics once you reach your official retirement date, but this keeps moving further away, which gives me the prospect of paying Nics — for no extra benefit. I’m not sure that sounds like the “generous basic state pension for those who have worked and saved hard all their lives” promised by George Osborne.
 
What is so hard to understand about that if you don't have 35 years of contributions, you won't get a full HMG pension?
I suppose that this was complicated previously by SERPS. But I still don't understand why people bitch about not getting a 'full pension' from HMG if they were contracted out, as they get at least the amount, possibly more, than the HMG reduction, from the pension fund that they were in when contracted out. So they are at least as 'well off' if not more so than they would have been if not contracted out. Simples.
I think that it was the raising of the threshold from 30 to 35 years that has made it appear to be more complex as peeps with less than 35 feel they are being sold short (and possibly are).
 
I certainly do. And that bit about the on-line calculator is crap - the DWP don't trust what it says, which is why I'm stuck in a queue now.
 
Trev said:
What is so hard to understand
Click to expand...
The problem is that the new system was much vaunted as simple and flat rate, but it isn't. In other words the government raised great expectations which were subsequently found severely lacking. Bit like the new Toblerones.
I was a little bit surprised to find that I wasn't getting the full pension - I get about £20 less due to some contracted out employment. I'm not complaining about that, but it was a disappointment since my expectations had been raised to the £150+ value.
 
Trev said:
But I still don't understand why people bitch about not getting a 'full pension' from HMG if they were contracted out, as they get at least the amount, possibly more, than the HMG reduction, from the pension fund that they were in when contracted out. So they are at least as 'well off' if not more so than they would have been if not contracted out.
Click to expand...
That probably applies to almost all with company defined benefits pensions where the individual has been forced to opt out as part of their employer's scheme rules, but with personal pensions the situation is now considered to be very different from the early opt out forecasts.
When contracting out it was hailed as a great thing especially with the additional incentive bonus. A few years later (end of the 1990s?) it started to be realised that some of the original comparison forecasts were off and the general recommendation for those with a money purchase pension plan turned into a recommendation to consider opting back, or if not sure to opt back in.
A quick search has this article which lists a few areas of why the original analysis of the value of opting out got it wrong for many. There are swings and roundabouts but mostly there are negatives:
http://www.thisismoney.co.uk/money/...26/What-contracting-does-affect-pensions.html
 
Looks like I am lucky: my company realised it was a mistake in 1999, and contracted us back in (although you had the option to remain contracted out if you wanted).
 
One thing I never got to understand is that when I got an estimate of my pension a year or so before it began the quote had two figures, both for the 'New' pension and both with deductions from contracting out in the past. One was about £122 and was based on the 'old' rules. The other, based on the 'new' rules was about £29.
I nearly had a heart attack but fortunately they said I would get the higher of the two :)

But I never managed to find out what these 'new' rules are, and/or why there was such a huge difference. I assume someone is going to suffer from them at some point.
 
Black Hole said:
The new rules are the "flat rate" state pension.
Click to expand...
It's very hard to see how any rules would result in someone with full 'years' of employment contributions and a moderate amount of contracting out of the extras losing nearly 80% of their pension.
I'm guessing this would never happen in practice, but I'd still be interested to know how the heck the system arrived at that number.
 
I've not found that information either, but reading this (linked from post 15):

http://www.thisismoney.co.uk/money/...26/What-contracting-does-affect-pensions.html

...does at least give some justification why I am advised to have a conversation with an expert before paying back-contributions:
Steve Webb said:
To work out whether it is possible to top up your pension, the first thing you need to look at is what is called your ‘starting amount’ for the new state pension as at April 2016 and how this has been calculated.

This starting amount is the higher of two numbers – the old basic pension plus state earnings-related pension (SERPS) you would have got under the old rules, and the new state pension based on 35 years of contributions minus a deduction for past contracting out.

Whether you can usefully pay voluntary contributions and for which years is shaped by whether your ‘starting amount’ is based on the old rules or the new rules. It does not say this on online forecasts and was dropped from the paper versions to make them simpler, but you can contact the Future Pension Centre to find out.

If your starting amount is simply the old basic state pension plus an amount for SERPS, then if you already have 30 qualifying years before April 2016 there is no point paying voluntary contributions for years before 2016.

This is because extra years before 2016 only count towards your basic state pension. So if you already have a full basic state pension, there is nothing that you can add to it.
Click to expand...
Aaarrggghhhhhhh!!!!!!
 
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