State Pension Forecast - making up the shortfall

[Clariman]

I'm a few years away from receiving my state pension, but I'm wondering whether I should make up the shortfall. According to government website ...

Estimated based on NI record to 5th April 2022 - £171.54 per week

It says that the maximum I can get is £185.15 if I pay NI over the next 3 years. I understand that figure is the maximum payable to anyone.

The website also says; 39 years of full contributions, 4 years to contribute before 5 April 2026, 7 years when you did not contribute enough. A couple of things puzzle me. Firstly I was contracted out of for at least 27 of those years so surprised I can get paid the maximum. Or is SERPS (or whatever it is called now) additional to the £185.15?

Based on the above, if I wanted to receive the maximum would I have to make 3 more years NI payments or might 1 or 2 be enough? How can I tell?

Many thanks
C

[AsleepInYorkshire]

I'm a few years away from receiving my state pension, but I'm wondering whether I should make up the shortfall. According to government website ...

Estimated based on NI record to 5th April 2022 - £171.54 per week

It says that the maximum I can get is £185.15 if I pay NI over the next 3 years. I understand that figure is the maximum payable to anyone.

The website also says; 39 years of full contributions, 4 years to contribute before 5 April 2026, 7 years when you did not contribute enough. A couple of things puzzle me. Firstly I was contracted out of for at least 27 of those years so surprised I can get paid the maximum. Or is SERPS (or whatever it is called now) additional to the £185.15?

Based on the above, if I wanted to receive the maximum would I have to make 3 more years NI payments or might 1 or 2 be enough? How can I tell?

Many thanks
C

I stand to be corrected but I thought SERPS was a "secondary" pension scheme.

AiY(D)

[Lootman]

It says that the maximum I can get is £185.15 if I pay NI over the next 3 years. I understand that figure is the maximum payable to anyone.

That figure is not "the maximum payable to anyone". I get more than that. I think the rule is that you cannot get more than that based on the new post-2016 scheme. It is possible to get more than that if your SP is computed on the old pre-2016 basis.

[Gersemi]

mc2fool has explained all this before - have a look at this thread.

viewtopic.php?f=17&t=38273

[Clariman]

mc2fool has explained all this before - have a look at this thread.

viewtopic.php?f=17&t=38273

Thanks. Reading that thread it says that each year of NI paid gains £5.29. That means I need 3 years to fully meet the maximum or 2 years to be as close as makes no difference (£182.12). The gap for Mrs C could be made up with 6 years of additional NI being paid, but that only takes her up to £178.94 which is what the Govt website says is the most she can increase her state pension.

Can someone confirm I have understood that correctly?

Mc2fools's other point was that if you declared as self-employed for the missing years, you might be able to pay Class 2 NICs at £163.80 p.a. On our self-assessment tax returns we have declared income from furnished holiday lets as a trade. Does that count as being self-employed? If so, how do we pay the Class 2 NICs? Also, are there any other implications if we go down that route?

Many thanks
C

[BullDog]

mc2fool has explained all this before - have a look at this thread.

viewtopic.php?f=17&t=38273

Thanks. Reading that thread it says that each year of NI paid gains £5.29. That means I need 3 years to fully meet the maximum or 2 years to be as close as makes no difference (£182.12). The gap for Mrs C could be made up with 6 years of additional NI being paid, but that only takes her up to £178.94 which is what the Govt website says is the most she can increase her state pension.

Can someone confirm I have understood that correctly?

Mc2fools's other point was that if you declared as self-employed for the missing years, you might be able to pay Class 2 NICs at £163.80 p.a. On our self-assessment tax returns we have declared income from furnished holiday lets as a trade. Does that count as being self-employed? If so, how do we pay the Class 2 NICs? Also, are there any other implications if we go down that route?

Many thanks
C

Just be aware that voluntarily paying any NIC years before 2016 will not increase your pension entitlement. You can pay earlier years if you want to, nobody will prevent that happening. But it's a fact that paying up earlier years won't make a penny difference to your eventual state pension.

I strongly recommend before you do anything that you make a call to the Future Pensions Helpline who are very good at explaining your options regarding catch up of previous years. My experience in a very similar situation to yours was very good and I'm very glad I called them before paying any voluntary NIC. Hope that helps.

[ReformedCharacter]

Just be aware that voluntarily paying any NIC years before 2016 will not increase your pension entitlement. You can pay earlier years if you want to, nobody will prevent that happening. But it's a fact that paying up earlier years won't make a penny difference to your eventual state pension.

I strongly recommend before you do anything that you make a call to the Future Pensions Helpline who are very good at explaining your options regarding catch up of previous years. My experience in a very similar situation to yours was very good and I'm very glad I called them before paying any voluntary NIC. Hope that helps.

I bow to your superior knowledge but that leaves me confused, I bought 11 years last year and now have a forecast for a full pension. Quite a few of those years were prior to 2016. I've just checked my forecast to make sure.

Checking here:

https://www.nidirect.gov.uk/articles/voluntary-national-insurance-contributions-gaps-your-national-insurance-record

You’re a man born after 5 April 1951 or a woman born after 5 April 1953:

You have until 5 April 2023 to pay voluntary contributions to make up for gaps between April 2006 and April 2016 if you’re eligible.

I believe the date has changed from 5 April to 31 July 2023.

RC

[mc2fool]

Just be aware that voluntarily paying any NIC years before 2016 will not increase your pension entitlement. You can pay earlier years if you want to, nobody will prevent that happening. But it's a fact that paying up earlier years won't make a penny difference to your eventual state pension.

Not necessarily so, you've made an assumption there, that Clariman already had 35 or more years at 6-Apr-2016, but all we know (from info in this thread at least), is that he has 39 years up to now. If he had less than 35 years on that date then adding a pre 2016 year might increase his pension (if he had less than 30 it definitely would, but that isn't possible for him, as he must have had at least 31 then).

However, given that he isn't running out of time, and anyway, at best, a pre-2016 year would only get as much as a post-2016 one (currently £5.29pa), it's not worth the faff of working out, in this case.

I'll address some other points in the thread later....

[mc2fool]

Thanks. Reading that thread it says that each year of NI paid gains £5.29. That means I need 3 years to fully meet the maximum or 2 years to be as close as makes no difference (£182.12). The gap for Mrs C could be made up with 6 years of additional NI being paid, but that only takes her up to £178.94 which is what the Govt website says is the most she can increase her state pension.

Can someone confirm I have understood that correctly?

Yes, that's correct. Two more years will take you to £182.12pw and a third year will add the remaining £3.03pw to get you to the full new state pension amount. That's an extra £157.56 a year, which remember will go up by (currently) the triple lock each year, so I'd suggest it's not as close to the maximum as makes no difference, and even at the full class 3 NIC cost still gives a payback period of just 5y3m (and that's not including increases).

It sounds like you have a choice as to how to make those 3 years, either by past, present or future NICs. If you're going to go the Class 3 route then you can look at your record online to see which past ones you can fill and the cost (ignore any pre-2016 ones for the reasons in my previous post). Note that the extension from 5 April to 31 July 2023 applies to all past Class 3 NICs, and includes the cost freeze for 2020/21. (https://community.hmrc.gov.uk/customerf ... 155d975688)

Mc2fools's other point was that if you declared as self-employed for the missing years, you might be able to pay Class 2 NICs at £163.80 p.a. On our self-assessment tax returns we have declared income from furnished holiday lets as a trade. Does that count as being self-employed? If so, how do we pay the Class 2 NICs? Also, are there any other implications if we go down that route?

Clearly if you can pay voluntary class 2 NICs that's better than class 3, but I can't answer your question about holiday lets and self employment, as property income seems to have it's own rules, of which I am unfamiliar. E.g. I see that property income has a separate allowance to trading income.

You do have to declare yourself as self-employed in order to be able to pay class 2 NICs, and whether you can or indeed should in respects of your holiday lets I suggest you try asking in the Property Investment or Taxes boards.

But even if you can't or don't want to, you can still declare yourself self employed for some other "toy" job. You can then pay the voluntary class 2 NICs by ticking the "I want to pay class 2 NICs even though my self-employed income is less than the allowance" box (words to that effect, at least!) in your self assessment.

[Clariman]

RESULT!

Well the time spent queuing to speak to Future Pensions and the NI phone numbers today was well worth it. Although having Furnished Holiday Lets is not "Self Employed" it is treated exactly the same way for NI contributions - they are eligible for Class 2 voluntary contributions. My one off payment of £486 will increase my annual state pension by £707 per annum and Mrs C's approx £900 one off will get an additional £1,650 for her.

Thanks for the help and advice here.

[mc2fool]

RESULT!

Well the time spent queuing to speak to Future Pensions and the NI phone numbers today was well worth it. Although having Furnished Holiday Lets is not "Self Employed" it is treated exactly the same way for NI contributions - they are eligible for Class 2 voluntary contributions. My one off payment of £486 will increase my annual state pension by £707 per annum and Mrs C's approx £900 one off will get an additional £1,650 for her.

Thanks for the help and advice here.

Yes, a good result, and thanks for doing the legwork re finding out that having holiday lets makes one eligible for class 2 voluntary NICs; I believe you've added to The Lemon Fool collective knowledge there.

[Clariman]

RESULT!

Well the time spent queuing to speak to Future Pensions and the NI phone numbers today was well worth it. Although having Furnished Holiday Lets is not "Self Employed" it is treated exactly the same way for NI contributions - they are eligible for Class 2 voluntary contributions. My one off payment of £486 will increase my annual state pension by £707 per annum and Mrs C's approx £900 one off will get an additional £1,650 for her.

Thanks for the help and advice here.

Yes, a good result, and thanks for doing the legwork re finding out that having holiday lets makes one eligible for class 2 voluntary NICs; I believe you've added to The Lemon Fool collective knowledge there.

My pleasure. The Future Pensions phone line couldn't answer that but the NICs one did. In fact he said, "ah, I'm glad you mentioned the holiday lets because that makes a difference". I was allowed to back date it and he even looked through to find the least expensive years to do it for. Very helpful indeed.

[mc2fool]

Yes, a good result, and thanks for doing the legwork re finding out that having holiday lets makes one eligible for class 2 voluntary NICs; I believe you've added to The Lemon Fool collective knowledge there.

My pleasure. The Future Pensions phone line couldn't answer that but the NICs one did. In fact he said, "ah, I'm glad you mentioned the holiday lets because that makes a difference". I was allowed to back date it and he even looked through to find the least expensive years to do it for. Very helpful indeed.

Future Pensions is DWP, NICs is HMRC. There is only one "least expensive year" and that's the previous tax year. All others are charged at the current rate. So, you paid 2 years at £3.15 * 52 and one year (21/22) at £3.05 * 52.

I take it your holiday lets income has been below the Lower Profits Threshold (currently £11,908, although much up from the £9,568 last year), at which self employed also start paying class 4 NICs, or doesn't it work like that for holiday lets?

[BullDog]

RESULT!

Well the time spent queuing to speak to Future Pensions and the NI phone numbers today was well worth it. Although having Furnished Holiday Lets is not "Self Employed" it is treated exactly the same way for NI contributions - they are eligible for Class 2 voluntary contributions. My one off payment of £486 will increase my annual state pension by £707 per annum and Mrs C's approx £900 one off will get an additional £1,650 for her.

Thanks for the help and advice here.

Great news. It's extremely important for people to be aware of the Future Pensions service. They prevented me paying at least one year of voluntary NIC for before 2016. It wouldn't have increased my pension by even a penny but HMRC would have quite happily let me pay it.

I qualified to draw State Pension this year and I am just a few pence short of the maximum new state pension.