State Pension queries for the HMRC

[bjmarren]

Hi All,

I need to contact the HMRC regarding my State pension which I am due to start receiving next March, but I wanted to run a few things past this board first, as a way of getting my ducks in a row, and also as I know there are some very knowledgeable posters here, such as "mc2fool", who has considerable knowledge on state pension issues. I'll start by saying that I've been non-resident in the UK since the late 1990's but live in the EU (Bulgaria) and my pension will be based under the rules for people who will retire after 2016.

In 2005 I had 32 years NI contributions and was advised by HMRC that as a result of the changes planned for 2010, which reduced the total years requirement to 30 years for both men and women, I should consider stop paying Voluntary Class 2 contributions as I already had more than enough contributions for a full pension at that point, although the 32 years contribution included a contracted period, which would reduce my overall full pension amount. In view of this I then stopped paying further voluntary contributions.

However, when the new changes from 2016 were about to come into force, which increased the number of years of NI contributions to 35, I applied to re-start payments of Voluntary Class 2 contributions to help bride the gap as a result of my contracted period. I was told that paying back years, prior to 2016 would not improve my situation, but paying from 2016 would help improve my final pension amount, and I've continued to pay Class 2 from 2016 onwards up to and including 2021/22.

What is not completely clear to me at the moment is, if 3 of the years Class 2 that I've been paying from 2016 will be used to top up my previous 32 years to the new 35 year contributions, which will mean that only 3 of the 6 extra years that I've paid will now go towards making up the difference between the full pension and the reduced amount as a result of my contracted out years, or I qualify for a full 2016 rate pension based on my situation in 2005 i.e. already having more years than was necessary at that point. I assume the former but would like confirmation from HMRC.

Also, I recently received a letter from HMRC informing me that I'll reach State Pension age on 23rd March 2023, which is a couple of months earlier than I had previously understood would be my pension start date. This is a good thing you would assume, and I guess it is. However, I had planned to also pay Voluntary Class 2 contributions for the 2022/23 year, as it would also help to cover my contracted period, which reduces my final pension amount, but as you can only pay voluntary contribution for complete years I won't be able to do this. However, I understand I could delay the start of receiving my state pension by a minimum of 9 weeks, which would increase my pension by 1%, but it would also logically mean I could pay Class 2 for the 2023 financial year, which would also help to increase my final pension and any subsequent increases. Do you think this is worth considering, in light of the situation in the previous paragraph, or is a good idea anyway. I've always assumed that the weekly Class 2 rate is the amount that your pension would be increased by if you were trying to improve your final pension amount.

Thank you for reading this, if you have managed to do so, and I would welcome any comments or advice anyone has. I will anyway contact HMRC but you need some luck when you get through to have someone that has more than the basic knowledge and experience on such matters. Not anyone's fault at their end, as they are always helpful.

Brendan

[mc2fool]

Hi Brendan,

Well, firstly, how come your State Pension Age is a couple of months earlier than you'd thought? 23rd March 2023 is your 66th birthday, right? If not, then ..........?

Secondly, I don't believe that deferring your state pension into tax year 2023/24 will permit you to add this tax year, 2022/23, as a qualifying year. On a quick search I can't find anything to support or deny that, but I've never heard of it before and as it's an obvious ploy for anyone that's a year or two short, you'd think it would have come up on these boards sometime previously.

Thirdly, the 35-years-for-a-full-new-state-pension is only true for anyone totally under the new system, i.e. who got their first qualifying year from 2016 onwards. For anyone who has years before and after 2016 it's more complicated. It's possible that they could get the full amount with less than 35 years, possible that they'll need more than 35 years to get the full amount, and possible that they can't get the full amount at all, if they run out of time.

So, let's find out your exact situation (and figure out if not topping up pre-2016 was correct!). If you haven't already, sign up for the online state pension forecast (which will include access to your NI record) at https://www.gov.uk/check-state-pension and then post here the info listed at viewtopic.php?p=402147#p402147

[mc2fool]

P.S. If you don't already have online access but have received a forecast since 2016, then post all of the figures from the last one of those you received, along with the year it applies to, and that'll probably be enough to figure out your position.

[bjmarren]

Hi mc2fool,

Many thanks for your prompt reply, and I just wanted to reply back that I have a Gateway account and can access my NI details and forecast pension and will do this and post back here a bit later.

Yes, I was surprised the letter I received from HMRC gave my pension start date as 23 March 2023 as my 66th birthday will be on the 28th March 2023. If they have made a mistake about the date, which it seems they may have, it may solve the problem about paying Class 2 for 2023/23, but this is another thing to bring up with them. They have suggested that I contact the International Pension Centre which I will do in due course.

Brendan

[mc2fool]

Many thanks for your prompt reply, and I just wanted to reply back that I have a Gateway account and can access my NI details and forecast pension and will do this and post back here a bit later.

Yes, I was surprised the letter I received from HMRC gave my pension start date as 23 March 2023 as my 66th birthday will be on the 28th March 2023. If they have made a mistake about the date, which it seems they may have, it may solve the problem about paying Class 2 for 2023/23, but this is another thing to bring up with them. They have suggested that I contact the International Pension Centre which I will do in due course.

I take it you don't mean 28th March 2023 as that's not a couple of months later than 23-Mar, and wouldn't help you with Class 2 for 2023/23 ...

One other thing to check and post from your online account: it will say "Estimate based on your National Insurance record up to 5 April 202n". As it's still only a short way into the new tax year, check if it says it's up to 5 April 2021 or 2022, i.e. if the figures include the last year just gone, or if they haven't updated it for that yet.

BTW, I take it you are aware that you (normally) have to apply for your UK State Pension via the appropriate authority in Bulgaria. If you haven't already you might want to look into that to see if they have any particular hoops for you to jump through (the CFN 901!). As you're well past the qualification threshold in the UK (10 years) any qualifying years you have in Bulgaria won't help with your UK pension, but your UK qualifying years may (or may not) help you with your Bulgarian state pension, depending on how their system works. Something to look into if you haven't already.

[bjmarren]

Hi "mc2fool",

The information from my online account is as follows:

The amount it says I'll get from my record up to 5th April 2021: GBP 172.76. GBP 178.05 up to 2021/22 Class 2 paid but not shown yet.
The Contracted Out Pension Equivalent (COPE) amount: GBP 42.04
The number of full qualifying NI years up to and including 2015-16: 33 Years *
The number of full qualifying NI years from 2016-17 onward, inclusive: 5 years, 6 including 2021/22 paid but not yet shown
The years that you don't have a full qualifying NI year for from 2006-7 onward: 9 years
and if any of those are part filled, the cost to fill them: No contributions made. GBP 824.20 per year by 5 April 2023
* The records show they are checking the 2005/2006 year to see if counts towards my pension. I'm sure this is quite a new note as I didn't see this the last time I checked my contributions.

I hope this is the information you need, and I really appreciate you taking the time to have a look at them. I naively thought that as I start my pension after 2016 I come under the new rules, but I guess it's not a simple as that.

I've already contacted the Bulgarian authorities as I wanted to know when I could stop paying NI here as it's very expensive by Bulgarian standards and they're waiting to hear from the UK end about how many contributing years I've got!!! I won't get a Bulgarian pension, as I have a labour contract with a Bulgarian registered company where I'm employed at the very minimum number of weekly hours, which allows me to pay only medical insurance. The Bulgarian pension is pitifully small by European standards and most pensioners have to survive on a monthly pension of about GBP 200, but thank you for thinking of reminding me about this.

Brendan

[mc2fool]

OK .... are we sitting comfortably?

Firstly, as an intro, the rule of thumb about pre 2016 qualifying years:

a) if you have less than 30 pre 2016 qualifying years then adding one (or more) pre 2016 years will always increase your pension
b) if you have 30 to 34 pre 2016 qualifying years then adding one (or more) pre 2016 years may or may not increase your pension
c) if you have 35 or more pre 2016 qualifying years then adding one (or more) pre 2016 years will not increase your pension

(Note that (a) and possibly (b) don't necessarily mean it will be worth it. E.g. you can, at the extreme, have an edge case where paying to add an extra pre 2016 year will, yes, increase your pension, but only by 1p...)

So, as you're in (b) the first thing we're going to do is figure out your 2016 "starting amount" that is used for your transition to the new state pension system. This is the higher of your entitlement under the new system less the COPE and your entitlement under the old system (plus additional state pension, but park that for the moment).

Now, the twist in this calculation is that the COPE, as presented, is a 2016 figure, so what we have to do is figure everything using the 2016 equivalent amounts, and then, if/when we need it, revalue the result to take into account all the triple-lock increases since. We could do it the other way round (revalue the COPE to today and do everything in today's figures), but should you ever need to talk to DWP/HMRC about your "starting amount" they'll talk in 2016 figures, so we'll do it that way. So....

2016 Old State Pension (30 years): £119.30
2016 New State Pension (35 years): £155.65

You have 33 pre 2016 years so under the old state pension you'd simply get the full amount £119.30. Easy!

Under the new state pension you'd get: £155.65 * 33/35 = £146.76 minus your COPE of £42.04 = £104.72.

So, we can see that, as it's the higher, your 2016 "starting amount" will be the £119.30 from the old system, and further, as that's also more than the full new pension less your COPE (£155.65 - £42.04 = £113.61), we can see that adding any extra pre-2016 years won't help. So (unfortunately) they gave you correct advice on that!

Now, just for completeness on the "starting amount", there's something I mentioned earlier that we don't have a figure for but we can now back-calculate, being additional state pension. (This is just FYI. You can skip the next paragraph if you want!)

The current full new state pension is £185.15.
Since 2016 you have added 6 more years, so if we take those off of your current £178.05 we get (£178.05 - 6*(£185.15/35)) = £146.31.
That's in today's figures. If we now devalue it by all the triple-lock increases back to 2016 we get £146.31 * £155.65/£185.15 = £123.00
So, your actual 2016 "starting amount" was £123.00, and as we've already figured that £119.30 of that was old state pension, it follows that you also had £3.70 of additional state pension. That makes up £4.40 of your state pension figure today.

Now, for post 2016 years there is a much simpler rule of thumb: if you aren't already up to the full new state pension amount you can keep adding more years (gaining, currently, £185.15/35 = £5.29 per year) until you either reach the full new state pension amount or the tax year before you reach state pension age, whichever comes first.

Unfortunately the latter sounds like it's the case for you (or, at least, HMRC believes it is). If that is, indeed, an error and you can contribute for this year (22/23) as well then you'll be able to get up to £183.34, and that's it.

Hope this helps and is clear enough, even if it isn't the best news. You now owe me a beer.

[bjmarren]

Thank you so much for going into the details of this.

Given that it is a lot more different than I imagined, it was a lot to take in and I have a few, obviously stupid questions to ask if you could bear with me. As I understand it my situation in 2016 is that my pension amount was £123.00 and this has been increased by paying additional years from 2016 to 2021 inclusive. Presumably I won't be able to pay additional years for 2022/23, even if I defer starting the pension for the minimum 9 weeks (to be checked with HMRC). In the last sentence you say that paying for 2022/23 would be able to get me up to £183.34, but that is obviously before deducting the COPE amount. Apologies for the dumb questions.

Brendan

[bjmarren]

Hi again,

Reading back what I just sent you now seems not right when thinking about it. When calculating what pension I can expect to get if I was getting the pension now, I assume I should take the 2016 position, GBP 123.00 and then increase it by the annual increases from 2016 as well as adding in the extra years that I have paid. Is that right? And if so, should it logically take me to the figure that is currently on my personal account with HMRC?

Brendan

[mc2fool]

Thank you so much for going into the details of this.

Given that it is a lot more different than I imagined, it was a lot to take in and I have a few, obviously stupid questions to ask if you could bear with me. As I understand it my situation in 2016 is that my pension amount was £123.00 and this has been increased by paying additional years from 2016 to 2021 inclusive. Presumably I won't be able to pay additional years for 2022/23, even if I defer starting the pension for the minimum 9 weeks (to be checked with HMRC). In the last sentence you say that paying for 2022/23 would be able to get me up to £183.34, but that is obviously before deducting the COPE amount. Apologies for the dumb questions.

Brendan

Yes, your "starting amount" in 2016 was £123.00 and this has been increased both by your additional years since and as a result of the general "triple-lock" increases. If you hadn't paid any of those additional years it would now be £146.31 just from "triple-lock" increases.

As I said in my first reply, I don't think you can add additional years post state pension age by deferring, but that's based on never having heard of it rather than an authoritative source. So, yes, do ask ... and please report back.

In regards to "obviously before deducting the COPE": no, the COPE is only used in the calculation for determining your "starting amount". It's irrelevant now.

The bottom line for you is simple. You will get £178.05pw. You cannot boost that by adding any previous years, and as things stand it looks like you can't add this year (or any future years). However, if you can, either 'cos of the error in your 66th birthday (which will have to be on or after 6-Apr-2023) or 'cos I'm wrong about deferring, then each year will add £5.29pw.

Reading back what I just sent you now seems not right when thinking about it. When calculating what pension I can expect to get if I was getting the pension now, I assume I should take the 2016 position, GBP 123.00 and then increase it by the annual increases from 2016 as well as adding in the extra years that I have paid. Is that right? And if so, should it logically take me to the figure that is currently on my personal account with HMRC?

Well that's a guarantee 'cos if you look back you'll see that I derived the £123.00 (as BSP + ASP) by doing exactly the reverse of that from your current figure.

[bjmarren]

All is clear now and I can't thank you enough for going through the details and explaining it in a laymans language that makes it understandable even for the likes of me. Having another years Class 2 would have been nice but I'm happy with what I'll be getting, as it'll go a lot further here in Bulgaria than it would in the UK.

The beers are definitely on me and if you're ever in Bulgaria I'd be more than happy to treat you to Bulgarian beer, which is very good and Tripe soup (Skembe Chorba) which is a Bulgarian speciality!

Cheers,

Brendan

[bjmarren]

Hi mc2fool,

A while back you very kindly made a calculation about what my final State pension would be, based on my NI contributions (see below). I wondered if I could ask you a small questions about it. My total NI years prior to 2016 were 33 years and you calculated that it would make no sense to pay back years prior to 2016 as it would not improve my final pension figure. My question is, did the extra 3 years that I paid, over and above the required 30 years required from 2010, actually help my final pension figure or not.

Thanks in advance,

Brendan

OK .... are we sitting comfortably?

Firstly, as an intro, the rule of thumb about pre 2016 qualifying years:

a) if you have less than 30 pre 2016 qualifying years then adding one (or more) pre 2016 years will always increase your pension
b) if you have 30 to 34 pre 2016 qualifying years then adding one (or more) pre 2016 years may or may not increase your pension
c) if you have 35 or more pre 2016 qualifying years then adding one (or more) pre 2016 years will not increase your pension

(Note that (a) and possibly (b) don't necessarily mean it will be worth it. E.g. you can, at the extreme, have an edge case where paying to add an extra pre 2016 year will, yes, increase your pension, but only by 1p...)

So, as you're in (b) the first thing we're going to do is figure out your 2016 "starting amount" that is used for your transition to the new state pension system. This is the higher of your entitlement under the new system less the COPE and your entitlement under the old system (plus additional state pension, but park that for the moment).

Now, the twist in this calculation is that the COPE, as presented, is a 2016 figure, so what we have to do is figure everything using the 2016 equivalent amounts, and then, if/when we need it, revalue the result to take into account all the triple-lock increases since. We could do it the other way round (revalue the COPE to today and do everything in today's figures), but should you ever need to talk to DWP/HMRC about your "starting amount" they'll talk in 2016 figures, so we'll do it that way. So....

2016 Old State Pension (30 years): £119.30
2016 New State Pension (35 years): £155.65

You have 33 pre 2016 years so under the old state pension you'd simply get the full amount £119.30. Easy!

Under the new state pension you'd get: £155.65 * 33/35 = £146.76 minus your COPE of £42.04 = £104.72.

So, we can see that, as it's the higher, your 2016 "starting amount" will be the £119.30 from the old system, and further, as that's also more than the full new pension less your COPE (£155.65 - £42.04 = £113.61), we can see that adding any extra pre-2016 years won't help. So (unfortunately) they gave you correct advice on that!

Now, just for completeness on the "starting amount", there's something I mentioned earlier that we don't have a figure for but we can now back-calculate, being additional state pension. (This is just FYI. You can skip the next paragraph if you want!)

The current full new state pension is £185.15.
Since 2016 you have added 6 more years, so if we take those off of your current £178.05 we get (£178.05 - 6*(£185.15/35)) = £146.31.
That's in today's figures. If we now devalue it by all the triple-lock increases back to 2016 we get £146.31 * £155.65/£185.15 = £123.00
So, your actual 2016 "starting amount" was £123.00, and as we've already figured that £119.30 of that was old state pension, it follows that you also had £3.70 of additional state pension. That makes up £4.40 of your state pension figure today.

Now, for post 2016 years there is a much simpler rule of thumb: if you aren't already up to the full new state pension amount you can keep adding more years (gaining, currently, £185.15/35 = £5.29 per year) until you either reach the full new state pension amount or the tax year before you reach state pension age, whichever comes first.

Unfortunately the latter sounds like it's the case for you (or, at least, HMRC believes it is). If that is, indeed, an error and you can contribute for this year (22/23) as well then you'll be able to get up to £183.34, and that's it.

Hope this helps and is clear enough, even if it isn't the best news. You now owe me a beer.

[mc2fool]

Hi mc2fool,

A while back you very kindly made a calculation about what my final State pension would be, based on my NI contributions (see below). I wondered if I could ask you a small questions about it. My total NI years prior to 2016 were 33 years and you calculated that it would make no sense to pay back years prior to 2016 as it would not improve my final pension figure. My question is, did the extra 3 years that I paid, over and above the required 30 years required from 2010, actually help my final pension figure or not.

In a word, no. Because of the amount of your COPE your 2016 "starting amount" would always be under the old system, with its max of 30 useful years, irrespective of how many pre 2016 years more than that you had.

[bjmarren]

Me again!

Having read through your calculation a couple of more times, I think that the answer is "no", those 3 additional pre 2010 years did not help in any way with my final pension figure, but please correct me if this is not the case.

Brendan

[mc2fool]

Me again!

Having read through your calculation a couple of more times, I think that the answer is "no", those 3 additional pre 2010 years did not help in any way with my final pension figure, but please correct me if this is not the case.

Brendan

I take it we had crossed posts there or are you still not clear?

[bjmarren]

No, all clear, we crossed posts! Thanks once again.

Brendan