making up for lost years - new question

[StayinAlive]

Moderator Message:
split off from other topic as this is a new 'case' (chas49)

Could someone advise me on this please.
My partner's NI record says she has 39 years of full contributions (she no longer works).
Her pension forecast for xx October 2024 is £185.15. So far so good.
It then says that she needs to continue to contribute NI to reach that forecast.
The estimate based on NI record to date is £175.15.
Forecast if she contributes another 2 years is the above mentioned £185.15.
I assume that the difference is due to having been contracted out at some point, but, even so,I thought that 35 years full contributions gave you a full pension.
If my assumption is correct then £1094 (the cost of the cheapest two years) will give her that extra £10 a week which means "break even" after just over two years into claiming pension.
Are my assumptions right?

[mc2fool]

Could someone advise me on this please.
My partner's NI record says she has 39 years of full contributions (she no longer works).
Her pension forecast for xx October 2024 is £185.15. So far so good.
It then says that she needs to continue to contribute NI to reach that forecast.
The estimate based on NI record to date is £175.15.
Forecast if she contributes another 2 years is the above mentioned £185.15.
I assume that the difference is due to having been contracted out at some point, but, even so,I thought that 35 years full contributions gave you a full pension.
If my assumption is correct then £1094 (the cost of the cheapest two years) will give her that extra £10 a week which means "break even" after just over two years into claiming pension.
Are my assumptions right?

Ok, firstly, the 35 years for a full pension bit is a common misunderstanding; it only applies to people totally under the new system, i.e. youngsters who don't have any pre-2016 contributions. For people who made contributions before and after 2016 it's a lot more complicated, and the full pension can, depending on individual circumstances, come with less or more than 35 years, or, indeed, not at all.

I take it from the info as phrased that the estimate of £175.15 is actually based on the NI record up to 5-Apr-2021. Check, 'cos if so that means they can contribute for last year (2021/22) and this (2022/23) in a way that could be considerably cheaper; see below.

It's not clear to me where the £1094 cost of the cheapest two years comes from, as there's no full years that'll cost that. Does that include partial years? When are the unfilled years (pre/post-2016)?

In any case, the cheap thing to do is to declare themselves self employed, doing some very low earning very part time "job", e.g. baby sitting the grandkids, gardening for a neighbour, a tiny bit of e-bay trading, etc, and then pay class 2 rates. Do it for last year and this, and the cost is £158.60 and £163.80 respectively. Further, they can earn up to £1000pa from the "job" tax free.

[StayinAlive]

mc2fool
"It's not clear to me where the £1094 cost of the cheapest two years comes from, as there's no full years that'll cost that. Does that include partial years? When are the unfilled years (pre/post-2016)?"
One is a partial year, 2014-15, where £102 contributions were paid and where they say she can make up the shortfall with £444.
The second year is 2015-16 where no contributions were made and to make up the shortfall would take £650.
Hence total £1094.
Thanks for the tip vis self-employment - will look into this. However, I suspect that any "income" from that will complicate the already maxed-out income tax allowances.
Cheers

(Transferred from the previous thread - sorry for confusion)

[mc2fool]

mc2fool
"It's not clear to me where the £1094 cost of the cheapest two years comes from, as there's no full years that'll cost that. Does that include partial years? When are the unfilled years (pre/post-2016)?"
One is a partial year, 2014-15, where £102 contributions were paid and where they say she can make up the shortfall with £444.
The second year is 2015-16 where no contributions were made and to make up the shortfall would take £650.
Hence total £1094.

Where do you get £650 from? Class 3 voluntary pre-2016 NICs are charged at the current rate of £824.20 for a full year.

But in any case, are you sure that adding/filling those pre-2016 years will help? How many full years did your partner have on 6-Apr-2016? If the answer is 35 or more then additional pre-2016 years won't help. If it's 34 or less, well I did the calculation for someone else just yesterday, see viewtopic.php?p=498039#p498039 ...

Thanks for the tip vis self-employment - will look into this. However, I suspect that any "income" from that will complicate the already maxed-out income tax allowances.

As I said, "they can earn up to £1000pa from the "job" tax free". There are no complications on income tax allowances. Self-employment has, in effect, its own £1000 allowance.

[StayinAlive]

mc2fool

If the answer is 35 or more then additional pre-2016 years won't help.

That's the bit that I did not realise - she has 37 pre-2016 years.
So, why does HMRC say the shortfall can be made up by voluntary contributions? See below. (Sorry about lack of editing skills).

2015-16
Year is not full
Hide 2015-16 details
You did not make any contributions this year
Find out more about gaps in your record and how to check them.
You can make up the shortfall
Pay a voluntary contribution of £649.85 by 5 April 2023. This shortfall may increase after 5 April 2023.

[Midsmartin]

This is just a comment to say thank you to these threads for pointing out the rules. I also thought I needed 35 years of contributions.
I've logged in to check my forecast more carefully and I see I need to contribute for a total of 38 years. Disappointing, but I'm glad I found out! I think I'm going to be making some voluntary contributions as I don't intend to work all that time.

[mc2fool]

mc2fool

If the answer is 35 or more then additional pre-2016 years won't help.

That's the bit that I did not realise - she has 37 pre-2016 years.
So, why does HMRC say the shortfall can be made up by voluntary contributions?

Yeah, that's been complained about for many yonks, and it's not just the pre-2016 thing. Even before the new state pension transition it would show the same for missing years even if you already had more than the 30 years (then) needed to get the full old state pension. The fact of having a gap and being able to pay to fill it is just unconnected with whether it'd be worth it to do so!

I'm still puzzled by the cost of £649.85, and even more puzzled by "This shortfall may increase after 5 April 2023", 'cos, as I say, pre-2016 NICs are charged at the current rate (£824.20) and after 5 April 2023 the ability to pay pre-2016 terminates, it being a special provision for the transition to the new state pension. Normally (and after 5 April 2023) you can only pay the last 6 years. See https://www.gov.uk/voluntary-national-insurance-contributions/rates

In any case, it's irrelevant for your partner as she already has more than 35 pre-2016 years and so adding any more won't help. That applies to filling her 2014-15 partial year too.

So, she's left with the choice of paying class 3 NICs for any of the past 6 years and this one, or paying class 2 for last year and this year.

The cost of class 3 NICs is frozen at that of their year for two years and thereafter goes up to that of the current year, so the cheapest way with those is to pay 2020/21 (£15.30*52=£795.60) and 2021/22 (£15.40*52=£800.80). Pre 2020 and for this year, 2022/23, they're £15.85*52=£824.20.

https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions

Class 2 rates, as already mentioned, are considerably cheaper, and while it's possible to also go back many years (albeit the cost is only frozen for one), the problem is that if she retrospectively declares herself as self-employed HMRC will ask her to refile her self assessment for those years, and may fine her for late filing (even if no additional tax was due).

So, as she only needs two years and has last year (which is still within the filing deadline) and this year to "earn" them, she can just register as self employed starting 6-Apr-2021 (and find a couple of relatives she can retrospectively do a "job" for!).

Start here: https://www.gov.uk/register-for-self-assessment/self-employed (the only notable faff is that if she doesn't already she will have to file self assessments).

[flyer61]

Thank you very much for explaining the 35 year rule which I had clearly misunderstood! Have worked really hard to try and get my wife a full state pension. Having just checked the forecast service this is her situation.

Forecast is £185.15 per week.

35 years of full conts.
6 years to contribute before 5 Apr 2027. (Pension is due Jul 2027)
10 years when you did not contribute enough. Many years ago.

Is she home and dry or do I need to keep her 'working' for the next 6 years (in fact it is now 5 years as she continues paying Class 1 NIC through PAYE)

Or is the forecast just a confusing ruse put out by the state.

Thank you.

[mc2fool]

Thank you very much for explaining the 35 year rule which I had clearly misunderstood! Have worked really hard to try and get my wife a full state pension. Having just checked the forecast service this is her situation.

Forecast is £185.15 per week.

35 years of full conts.
6 years to contribute before 5 Apr 2027. (Pension is due Jul 2027)
10 years when you did not contribute enough. Many years ago.

Is she home and dry or do I need to keep her 'working' for the next 6 years (in fact it is now 5 years as she continues paying Class 1 NIC through PAYE)

Or is the forecast just a confusing ruse put out by the state.

Maybe or maybe not the former but definitely the latter (the two are not exclusive!).

The problem with the info as they present it is that the big number across the top can either be what you're already set to get OR what you'll get if you contribute more, and you have to read carefully further down the page to figure out which. Take the following example:


https://www.muchmorewithless.co.uk/budgeting-on-the-state-pension/

It looks, at first glance, that they're set to get £179.60 (the full new state pension as of 2021/22 when that snapshot was taken) but read on down and you see that from their record to "now" (5-Apr-21) they'll only get £156.62 and actually need to contribute another 5 years to get the big headline figure of £179.60 plastered across the top. (At least they now include the bolded "You need to continue to contribute..." line!)

[StayinAlive]

mc2fool

Looks like we need to make contact with HMRC .
Do you have a link for the rule about maximum 35 years pre 2016 counting towards eventual pension?
As she has a personalised, rather than generic, statement, can you suggest any other reason why she
should "make up the shortfall", (other than seeing the magic words Full Year against the year)?
Thanks for your ongoing comments foe me and others.

[flyer61]

Ok it appears to me that she is home and dry....I think!

You can get your State Pension on 19 July 2027
Your forecast is £185.15 a week,
£805.07 a month, £9,660.86 a year

Your forecast

is not a guarantee and is based on the current law
is based on your National Insurance record up to 5 April 2021
does not include any increase due to inflation
£185.15 is the most you can get
You cannot improve your forecast any more.

If you’re working you may still need to pay National Insurance contributions until 19 July 2027 as they fund other state benefits and the NHS.

View your National Insurance record

Your forecast may be different if there are any changes to your National Insurance information. There is more about this in the terms and conditions.

[mc2fool]

Do you have a link for the rule about maximum 35 years pre 2016 counting towards eventual pension?

Wot, you don't believe me?

Unfortunately there was a great "dumbing down" soon after the introduction of the new state pension system, I suspect due to the large amount of confusion generated by DWP's over-zealous-but-poorly-explained launch (resulting in many people believing, inter alia, that everyone was getting the new state pension, along with confusion on the 30/35 year matter), and DWP's reaction to that was to give less information to everyone.

So, all of the plain-English detailed explanations disappeared, leaving just the likes of: https://www.gov.uk/new-state-pension/how-its-calculated.

However, there is a clear, albeit it rather dry, authoritative source: the legislation. The Pensions Act 2014, Schedule 1, Transitional rate of state pension: calculating the amount.

https://www.legislation.gov.uk/ukpga/2014/19/schedule/1 see sections 2 and, in particular, 4(2)(a).

As she has a personalised, rather than generic, statement, can you suggest any other reason why she
should "make up the shortfall", (other than seeing the magic words Full Year against the year)?

Well, I was going to say that there are some other things that NICs count for, if relevant, but I see that's not so for voluntary ones anyway.
https://www.gov.uk/national-insurance/what-national-insurance-is-for