State pension

[steelman99]

Hi All
would be grateful if someone could check my understanding of the new state pension and what NI i need to pay over the next few years

Present situation is that as from end of March I'm been made redundant at 57 (own choice as offer was too good to refuse)

I've paid NI for the last 41 years , but due to contracting out I've only got 29 qualifying years ( 18/19 will be year 30) , therefor to get a full state pension , i need to pay NI for another 5 years , or accept a state pension £25 per week below the full pension (know i can buy those years for around £3.5k which i will get back in increased pensions over 3 years)

In tax year 19/20 there will be a small amount of NI to pay on a day an a bits holidays that I'm owed which will be paid in April along with my redundancy , (Holiday pay Should be around £261 Gross)

I'm out the country for most of May ,so not looking for anything in April/ May , but after that may be looking for a small part time job , if I get bored
first question is can I sign on for contribution based job seekers allowance? ,not that I'm after any money ,just the fact I will get NI credits for a period. wont be drawing pension in this period , but living off Redundancy pay , also wife is working till end June if that affects anything - then she will be drawing her pension , I intend to start drawing my pension in December 2019

Second question is my understanding right that I need a job that pays Just over £162 per week so I pay a small amount of NI and get a full years record

if there's anything else i should be considering, please let me know

[swill453]

One thing I would say is that if you sign on for jobseeker's allowance, you will have to be making serious efforts to find a job. You're expected to spend hours per day trying, and to provide proof that you're doing so that will be scrutinised. Paying lip service isn't enough these days.

Scott.

[pochisoldi]

Second question is my understanding right that I need a job that pays Just over £162 per week so I pay a small amount of NI and get a full years record

First - the £162 figure is incorrect -that's the Primary Threshold (PT). The key figure is the Lower Earnings Limit (LEL) which is £116/week.

The PT, LEL, UEL figures are all actually dependent on your pay period.
So if you get paid every week, the LEL is £116, fortnightly: 2*£116-£232, 4 weekly: £464
If you get paid monthly, the LEL is £503

To earn another year on your pension you need to have paid NI on 52 times the weekly LEL or £6032.
This doesn't mean (for example) receiving 52 weekly pay packets with gross pay in excess of the weekly LEL, it means receiving individual pay packets which exceed the appropriate LEL, where the total gross pay exceeds £6032.

For example
Boris gets paid £232 a week.
The weekly LEL is £116
He works for 25 weeks and then leaves. His 26th paypacket after he leaves just has holiday pay of £93.
The first 25 pay packets are all in excess of £116, and total £5800.
The last pay packet is under the weekly LEL, and is ignored.

Boris is £232 short, or two weeks short of his £6032 target.

This means that any of the following will give him another year's pension:

Employed, and receiving gross pay of £232 in excess of the LEL:
- Two weeks grossing £116 (paid weekly)
- One fortnight grossing >£232 (paid fortnightly)
- One 4 week period grossing > £464 (paid 4 weekly)
- One month grossing > £503 (paid monthly)

Getting two weeks of credits
- Claiming JSA/ESA
- Signing on but not receiving JSA
- and others at https://www.gov.uk/national-insurance-c ... ligibility

Self employed and paying Class 2 stamp for at least two weeks (and not claiming small profits exemption if eligible)
- £2.95 for every week whilst self employed

Paying voluntary Class 3 NICs
- £15.65 a week

Note 1:This is a bit of a simplication - the following things have been missed out:
- "gross pay" is properly defined as "gross pay upto the UEL"
- Some people (e.g. directors have an annual period (all pay gets added together), with a LEL of £6032per year)

Note 2 - a hint.
A person with small business making £500 a year profit flogging tat on eBay would pay
(52*£2.95) £153.40 in Class 2 NI and no tax (if your total income is under the personal allowance)
or £253.50 in tax (@20%) and NI.
A person paying Class 3 NI would pay £813.80

or put another way
The ebayer gets a year on their pension and £246 in their back pocket.
The class 3 payer gets a year on their pension at a price of £814.

PochiSoldi

[Fluke]

Steelman99 your circumstances are not dissimilar to mine and I too am thinking of taking on a low paid part-time job.

If your part-time job brings in just under the primary threshold (PT), currently £8424 pa, the government credits you with a full years contributions but you need to make sure your employer tells them, it doesn't happen automatically apparently. If your pay is just over the threshold at let's say £10,000, you'll be paying a small amount of NI on the difference. But a question that's niggling me is once you're into NI territory is there a minimum contribution you need to pay in order to get a full year record? If so what is it? and what happens if you don't pay that full years contribution?

[mearnsfool]

"If your part-time job brings in just under the primary threshold (PT), currently £8424 pa, the government credits you with a full years contributions but you need to make sure your employer tells them, it doesn't happen automatically apparently."

Nonsense you need to be paid at the primary threshold this year £6,032 for the year. Further the employer sends in a monthly schedule to HMRC and a yearly schedule in April that gives this info on a monthly and year end basis. The employer will be in trouble if they do not do this.

If your pay is just over the threshold at let's say £10,000, you'll be paying a small amount of NI on the difference. But a question that's niggling me is once you're into NI territory is there a minimum contribution you need to pay in order to get a full year record? If so what is it? and what happens if you don't pay that full years contribution?

If the persons income per employment does not get to the lower earnings limit, no state pension NI credit. Even they have two jobs at £6,000 each.

[DrBunsenHoneydew]

The question is:

If you earn say £600 in month 1 and so pass the threshold for a free NI credit, but only earn £500 in months 2-12, not sufficient for any more monthly credits, but have total earnings for the year of £6100, do you get a “full NI year” in your pension record?

[Fluke]

"If your part-time job brings in just under the primary threshold (PT), currently £8424 pa, the government credits you with a full years contributions but you need to make sure your employer tells them, it doesn't happen automatically apparently."

Nonsense you need to be paid at the primary threshold this year £6,032 for the year. Further the employer sends in a monthly schedule to HMRC and a yearly schedule in April that gives this info on a monthly and year end basis. The employer will be in trouble if they do not do this.

The PT is £8424pa for the current year not £6032, that's the LEL. I was referring to the PT not the LEL. I take your point though about what the employer has to do. This clarifies the point I was trying to make:

If you earn above the Lower Earning Limit (LEL) for National Insurance, currently £116 per week but below the Primary Threshold (£162 per week), then you won’t actually pay any NI contributions on that wage but your record will be automatically credited with basic NI credits for that week

https://revenuebenefits.org.uk/tax-cred ... e-credits/

If your pay is just over the threshold at let's say £10,000, you'll be paying a small amount of NI on the difference. But a question that's niggling me is once you're into NI territory is there a minimum contribution you need to pay in order to get a full year record? If so what is it? and what happens if you don't pay that full years contribution?

If the persons income per employment does not get to the lower earnings limit, no state pension NI credit. Even they have two jobs at £6,000 each.

You may be right but that wasn't the question. The question was if you're earning just over the PT but not by much, you pay a small amount of NI on the difference between the PT and your salary, in this case is your NI record still credited with a full years contributions for state pension purposes?

[pochisoldi]

When you've got more than one (PAYE) job you have to do the LEL/UEL calculation on each separate employment.
You then add the total applicable gross pay figures together to see if you've got a full year or not.

This typically affects people at the bottom of the economy, holding down multiple small jobs, who either don't/won't or fail to claim in work benefits to earn NI credits.

Example 1: Employment incomes aggregate together to earn a year's pension
Hard working Fred has two part time jobs, and he gets paid

His first job pays £116 a week - which is equal to the LEL
His first employer is tight as a ducks backside in water. This means that when he's off sick, his paypacket goes down, untli SSP kicks in, which it never does.
His second job is a zero hours contract. The pay is variable depending on the number of hours he works.

If he was never off sick, he would have gross pay of 52 * £116 = £6032, and he's just scraped enough gross pay to get another year on his pension.
The reality is that he had a couple of weeks each year where his pay drops below the £116 LEL, and his gross pay for NI purposes is 50 * £116 = £5800.

He's £232 short of his target.

Fred then looks at his pay slips for his second job - all ten of them.
Eight of them are for less than £116 - although they amount to just under £800, for NI purposes, they are useless
Two of them were for more than £116 each, one comes to £160, the other comes to £150.

This means he has paid (or deemed to have paid) NI contributions on
£5800 from job 1 and £510 from job 2. Added together he's paid NI contributions on £6310. That's £278 more than the £6032 target, and he's earned another year on his pension.

Example 2: Aggregate income exceeds the limit, but none of the pay counts for NI purposes.
Alice is employed by two completely separate companies to do cleaning.
Job 1 pays £90 a week
Job 2 pays £85 a week

Neither job pays more than the LEL, so no NI is paid, nor is any NI deemed to be paid.
Alice has got a good reputation, and both her employers want to keep Alice happy, and they pay full sick pay and holiday pay, so she always gets a full week's pay from each job.
Despite grossing 52*£90+52*£85 = £9100, Alice earns no pension at all.

(Alice then finds out about this and says sod this, and the next tax year, registers for self employment. Rather than claiming/using the £1000 small self employment earnings exemption, she declares all her once in a blue moon cash-in-hand cleaning work and voluntarily pays £2.95 a week Class 2 NI, and buys herself a year's pension for £153.40)

PochiSoldi

Note:
In reality Alice could probably earn NI credits, but we are talking about NI and pensions here, not benefits, which may or may not deliver NI credits.

[mc2fool]

I've paid NI for the last 41 years , but due to contracting out I've only got 29 qualifying years

Contracting out doesn't affect the number of qualifying years you get, only the amount of the additional state pension and, potentially, your "starting amount" for the transition to the new state pension.

If you paid National Insurance Contributions for 41 full years then you should have 41 qualifying years. Perhaps you don't actually mean contracting out in the usual sense of the phrase in this context, i.e. contracting out of the earnings related state pension (SERPS/S2P)? https://www.gov.uk/contracted-out

[Alaric]

If you paid National Insurance Contributions for 41 full years then you should have 41 qualifying years.

It doesn't even have to be full years of employment if you earn enough. I got 2 full years out of the 6 months from September to April when starting work after graduation and 3 months from April to June when I collected a redundancy payout.

[mc2fool]

If you paid National Insurance Contributions for 41 full years then you should have 41 qualifying years.

It doesn't even have to be full years of employment if you earn enough.

Yes, sorry, I meant full NICs for 41 years rather than NICs for 41 years of 52 weeks each year. My poor phrasing...

[pochisoldi]

I've paid NI for the last 41 years , but due to contracting out I've only got 29 qualifying years

Contracting out doesn't affect the number of qualifying years you get, only the amount of the additional state pension and, potentially, your "starting amount" for the transition to the new state pension.

Contracting out increases the COPE figure (the theoretical amount of pension you should get from the rebate the government paid into your DB or DC pension.

The good news is that if (A) your "starting amount" plus "value of years earned since April 2016" is less than the full state pension, and (B) you have sufficient full tax years before your state retirement age, you can still earn/get credited/buy additional years.

Under the "old" system, once you had hit the maximum number of years NI contributions, any NI you paid was useless as far as a pension is concerned.

Note the emphasis on Full tax years - the NI paid/credited during the part tax year that runs from April 6th to your state retirement date does not increase your pension - more dead money.

PochiSoldi

[mearnsfool]

"If your part-time job brings in just under the primary threshold (PT), currently £8424 pa, the government credits you with a full years contributions but you need to make sure your employer tells them, it doesn't happen automatically apparently."

Nonsense you need to be paid at the primary threshold this year £6,032 for the year. Further the employer sends in a monthly schedule to HMRC and a yearly schedule in April that gives this info on a monthly and year end basis. The employer will be in trouble if they do not do this.

The PT is £8424pa for the current year not £6032, that's the LEL. I was referring to the PT not the LEL. I take your point though about what the employer has to do. This clarifies the point I was trying to make:

If you earn above the Lower Earning Limit (LEL) for National Insurance, currently £116 per week but below the Primary Threshold (£162 per week), then you won’t actually pay any NI contributions on that wage but your record will be automatically credited with basic NI credits for that week

https://revenuebenefits.org.uk/tax-cred ... e-credits/

If your pay is just over the threshold at let's say £10,000, you'll be paying a small amount of NI on the difference. But a question that's niggling me is once you're into NI territory is there a minimum contribution you need to pay in order to get a full year record? If so what is it? and what happens if you don't pay that full years contribution?

If the persons income per employment does not get to the lower earnings limit, no state pension NI credit. Even they have two jobs at £6,000 each.

You may be right but that wasn't the question. The question was if you're earning just over the PT but not by much, you pay a small amount of NI on the difference between the PT and your salary, in this case is your NI record still credited with a full years contributions for state pension purposes?

Fluke you are changeing reality here.

Steelman asked "Second question is my understanding right that I need a job that pays Just over £162 per week so I pay a small amount of NI and get a full years record "

The proper answer to this question is that in 2019 2020 the poster only needs to recieve the equivalent of 52 Xs £118 to get a years NI credit for his state pension. There is no need at all to have earnings over the Primary Threshold and pay NI contributions, your answer was poor in this case and any helpful poster would have advised steelman of this, why not just accept you got it wrong. Rather than say it was a question on the primary threshold.

You then gave false information that the employer would not automatically update the posters PAYE records, that was incorret and rather than agree you were wrong, you say I'm clarifying your point, it is not a clarification, it is a correction of your incorrect information.

[chas49]

(Alice then finds out about this and says sod this, and the next tax year, registers for self employment. Rather than claiming/using the £1000 small self employment earnings exemption, she declares all her once in a blue moon cash-in-hand cleaning work and voluntarily pays £2.95 a week Class 2 NI, and buys herself a year's pension for £153.40)

The Small Profit Threshold for 2018/19 is £6205 though. Isn't the £1000 figure the Trading Allowance - which affects liability to income tax rather than NIC?

(Doesn't affect Alice though, I think)

[pochisoldi]

(Alice then finds out about this and says sod this, and the next tax year, registers for self employment. Rather than claiming/using the £1000 small self employment earnings exemption, she declares all her once in a blue moon cash-in-hand cleaning work and voluntarily pays £2.95 a week Class 2 NI, and buys herself a year's pension for £153.40)

The Small Profit Threshold for 2018/19 is £6205 though. Isn't the £1000 figure the Trading Allowance - which affects liability to income tax rather than NIC?

(Doesn't affect Alice though, I think)

If Alice claims the £1000 exemption, then she's effectively saying "I'm not self employed at all", and the SA system won't even off the option of opting into paying Class 2 NI.

The Small Profit threshold is a concession to people whose main job is as an employee paying Class 1, for whom Class 2 is paying twice for access to the same services.
In the past it was also a useful filter so that NICO could avoid having to deal with people for whom the cost of admin outstripped the revenue raised.