My state pension starts in January. Promoted by the letter notifying me of this I checked my pension forecast. Despite having 42 years of “full” contributions I found I was £20 per week short of my potential maximum pension due to my ex-employer opting out of the enhanced state pension schemes.
However it’s possible to close this gap by paying some more National Insurance now. The govt Future Pensions helpline told me that although I had five years worth of years I could make up, I need only pay four years worth to make up the £20 gap. In round terms I could pay £800 for each £5 of additional weekly pension. This is taxable but I would break even after about 4 years.
I then went into HMRC Voluntary NI Contribution helpline where they gave me the details to pay online from my bank account.
Both helplines were first class. This is in contrast to the impenetrable online advice from govt and my employer as to how the opt out is reflected in defined benefit pension schemes which had previously deterred me from looking into this.
I guess there will be a few members on here coming up to state retirement. Cases will differ and we need to avoid straying into financial advice so, as they say, “do your own research”.
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>> My state pension starts in January. Promoted by the letter notifying me of this I
>> checked my pension forecast. Despite having 42 years of “full” contributions I found I was
>> £20 per week short of my potential maximum pension due to my ex-employer opting out
>> of the enhanced state pension schemes.
My state pension started this month. I too was contracted out, so I get the minimum "fully paid up" state pension, however, in being contracted out my DB pension scheme paid an enhanced pension step up from age 65 which was the pension age when I joined my scheme.
Dont forget the more state pension you get, the more tax you pay on your other pensions, because it eats into your tax allowance.
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I'm still ten years from mine. Given the ever changing goalposts, in my mind it will be nice if I get anything, but if not, we'll manage without. I've done a pension forecast but I'm still not sure I understand it or believe it.
So for me, anything at all is bunce.
I'm sure younger people starting out may well be thinking there won't be a state pension for them at all, so some will save like crazy into something suitable and others simply will give up and not think about it, spending it on life today.
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>> I'm sure younger people starting out may well be thinking there won't be a state
>> pension for them at all, so some will save like crazy into something suitable and
>> others simply will give up and not think about it, spending it on life today.
My 'kids' are 25 & 27 and both work for government bodies so have a reasonably good DB pension scheme though what it will be worth in 40years time is guesswork.
Both also have a private DC policy originally paid for by their late Grandmother who donated (IIRC) £500/pa into such a scheme for each of her grandchildren.
Of course, money paid in now and not accessible until 55/56 or whatever rule applies 30ish years down the road, should grow significantly. Even just £20 a month would be good. They're not doing it though.
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A bit of my experience, or rather my wife's.
My wife had modest NI contributions for 8 years, she had 21 years NI credits as a stay at home mum with 3 kids. Her State pension was, to say the least modest. After the boys left school she was a carer for her mother for decades - my MiL did not claim any carer's allowance etc so my wife could not claim more NI credits.
We paid £3,000 (IIRC) and bought 6 years pension years which gave her another £30 / week.
15 years at £30/ week was a huge return (£22,500) on the £3,000 we paid.
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>> After the boys left school she was a carer for her mother
>> for decades - my MiL did not claim any carer's allowance etc so my wife
>> could not claim more NI credits.
It would be your wife who might have claimed Carers Allowance. I assume the issue would be that her Mother never claimed the 'qualifying benefit'. Probably Attendance Allowance but could have been DLA or much more recently PIP.
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Zero, I will be taxed at the standard rate.
My DB scheme is already in payment but reduces when I reach state pension age due to an “offset”. This claws back any additional state pension I accrued when I was employed - but not the bit I am paying for now.
I don’t claim to understand this but neither does a relative who is a retired bank manager and whose scheme is similar.
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>> Zero, I will be taxed at the standard rate.
Indeed, although state pension is tax free, its taken out of your taxable allowance. Your reduced taxable allowance means you pay more on your other pensions.
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>> Indeed, although state pension is tax free, its taken out of your taxable allowance. Your
>> reduced taxable allowance means you pay more on your other pensions.
It's not tax free, just paid gross. As you say it eats into the Personal Allowance so there's less of that to be applied to other income.
As things stand my Civil Service pension uses all of my Personal Allowance and the tax code for my Citizens Advice Salary is BR. When my State Pension kicks in after another 6 years that will be taxed at 20% too, presumably by an adjustment to the code applied for my CS pension.
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I reach State pension age next July. Free bus pass at last!
An extra £7500 pa to fritter away. I’ve planned it so that my tiny private pension ( draw down) is fully spent by the time I’m 70. I’ll draw down just enough, so that when added to the state pension, I ‘earn’ just enough so that I pay no income tax.
I’m planning on downsizing and releasing a chunk of equity anyway, which in turn will be tax free as it’s my primary residence.
* the reason I have such a small amount remaining in my private pension is because I took out the max tax free amount at the earliest opportunity, think I was in my mid 50s, and have been drawing it down ever since I gave up a proper job several years ago.
Probably not the most sensible thing from a financial perspective, but suits my lifestyle.
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>> >> Zero, I will be taxed at the standard rate.
>>
>> Indeed, although state pension is tax free, its taken out of your taxable allowance. Your
>> reduced taxable allowance means you pay more on your other pensions.
Yes state pension is taxable but is always paid gross and as you say the amount of pension is deducted from your personal allowance.
I remember mentioning on here some years ago that when I received my state pension it was effectively taxed at the higher rate a fact that many on here denied was possible.
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>> I remember mentioning on here some years ago that when I received my state pension
>> it was effectively taxed at the higher rate a fact that many on here denied
>> was possible.
Yes. If State Pension plus other income whether occupational pension or pay mean that, after applying the appropriate allowances, you've enough income to be in the 40% band then you'll pay 40% on the top slice. It might be done by reducing allowances or via Self Assessment but the outcome at the end of year reckoning is the same.
One of my volunteer colleagues at Citizens Advice had Occupational Pension as a retired senior teacher plus State Pension. Didn't want to follow possibility of paid CA work because it would tip her into the 40% band so £10/hr gross was £6 take home; not adequate recompense for the hassle.
Last edited by: Bromptonaut on Tue 6 Oct 20 at 15:34
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Might take an actuarily reduced pension when I'm 50 next year.
Then I can pretend to be an old fart like y'all.
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>>
>> Then I can pretend to be an old fart like y'all.
>>
You're quite right; we're all pretending..........
(that'd just be me, then) ;-)
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>> Might take an actuarily reduced pension when I'm 50 next year.
>>
>> Then I can pretend to be an old fart like y'all.
I can assure you you qualify right out the gate, no need for you to do the training.
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So my online quote says I will get £183.61 and I have 44 years of full contributions (which means I started when I was 10 which is a bit odd!)
But I was in a contracted out scheme for a few years.
So I am assuming my pension will be abated when I get it, despite having checked with the on the phone and in writing that their estimate is correct.
Forgetting the anomalies, can I buy (some of) the contracted out years to make it back up again?
My company pensions are all now in my grubby mitts (effectively as as SIPPs) so there is no question of the work pensions paying me more or taking some away at 65 or 66.
Last edited by: smokie on Wed 7 Oct 20 at 00:05
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Smokie I didn’t keep records of the various links I used but checking your NI record is fairly easy. The first step is to google “check NI record” or similar. You probably need a Govt Gateway account to then check your records on the govt site. Again very easy to set up. My NI record started when I was a full time student in the 70’s. As far as I am aware you can only pay for gaps in the last five years, not contracted out years long ago. The record site will show missing years and which are open to be addressed.
Once you have the basic data there are links to the helpdesks I mentioned in my first post. They will tell you how many (if any) it’s worth addressing. In my case it was a clear decision but anyone looking at this needs to work out if it suits them.
As for pension figures I can’t recall the exact sites I used (govt pension forecast site?) but I had three pension figures. One based on past NI, another based on my also paying NI this year and one based on paying additional NI to address the relevant gaps.
Last edited by: martin aston on Wed 7 Oct 20 at 06:42
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Thanks - my data came from the Govt gateway, but although it says I was contracted put for a period it doesn't reduce the total pension quote accordingly. Is that other peoples experience?
Anyway thinking about it I could only buy additional years to make up a "number of years" shortfall, which I don't have (i.e. I can't buy additional years to negate the contracted out years).
btw Ignore my bad maths, having re-read it I have 44 full years, "2 years to contribute before April 2021", and 4 years when I did not contribute enough. The records start with 4 years "before 1975" which seems to credit me for a couple of years when I was actually still at school (though I had PAYE summer jobs so maybe they count).
I stopped work and have been self supporting for more than 5 years now. I'd have been a bit annoyed if I didn't have enough years through not signing on over those years, but all is well. As someone said elsewhere, I'm not fully dependent on the pension though it was factored in at the full amount when I did my initial spreadsheet about whether I can afford to stop work.
There are some recent years which I would question if I were short of years, where they said I contributed nothing which technically was true but that was because effectively I wasn't earning enough to pay NI
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I thought 35 years' contributions ensure maximum pension (the amount paid will be dependent on other pension history, however, including previous "contracted out" status"). I just nicely cleared this hurdle before I retired early.
You're probably of a vintage where you received credits for age 16, 17, 18 if you remained at school - though oddly there were no such credits for subsequent years in a University or similar education.
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I have credits for my uni years. Strangely I then have a year gap after graduation even though I worked that year. Too bad.
Overall, despite already having 44 years and adding in the 4 years I am now contributing I will still fall short of the £183 smokie quotes. And, as in my previous post, my DB scene will pull back an “offset” to reduce the state pension further.
Please don’t take this as a winge. I am comfortable with my overall position. It’s just a shame that it is so darned complicated and so many less well off people are unaware of this facility.
It’s also ridiculously subsidised by the govt (so that’ll be all of us then). I am generating £1k a year inflation-linked for a one-off £3.2k. To buy that commercially as an annuity would cost what, £20k upwards?
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>> I have credits for my uni years.......
Hmm, may be I should have written that there are no credits for University Years now (which seems to be the documented case).
Whilst I gave up worrying about the number of years once my records showed 35, I must admit I was fairly sure that I'd received credit for my Uni years (but definitely not for staying on at school, which I think started in '75). I suspect the Uni thing has changed.
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Having just checked, I haven’t been credited for my uni years (‘89 to ‘92) but ‘only’ need another 5 years to get the maximum it says I can get of £175.20 a week. Albeit not until 2038... And that extra 5 years only gives me £20 a week in round numbers. But it seems I only need 35 years of contributions? £183 doesn’t seem to be an option for me either!
Having started work at the tail end of final salary pensions (in the private sector), but at the time when hopping between jobs was common, in the ‘90s ‘boom’ just as I was starting my career, my ‘retirement’ income will have multiple streams, which is messy. I can access my personal pension (SIPP) from 55, which is just over 5 years away. Then there are two relatively small final salary pension schemes that pay out at 60, one a little larger that pays out at 67 and then the state pension, currently also 67. Plus a small one which I think is from an opted out component of one of the company schemes.
Diversification is, I suppose, good. But the rule changes over the years have made it difficult to consolidate... I’d happily forgo the final salary certainty and accept a transfer (the values of which, when combined, are material) into the SIPP just to let me access it it sooner. Plus, I have no need for the embedded spousal benefit of the FS schemes now either. But because they all have transfer values >£30k it’s almost impossible to do. Perhaps if Rishi wants to help boost employment opportunities post COVID he could relax the rules, and encourage people like me, who are winding down anyway, to pack it in earlier ;)
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All very well all this, but I'm rather concerned about the Honda Jazz / beige clothes / going to garden centres thing. When and why does this kick in, and is it compulsory?
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Runfer I will check with the local bowls club and get back to you on that.
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Peter "only" £20 a week yes but thats £1k pa (taxable) and its only costing you about £4K. Try getting that return elsewhere!
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>> Peter "only" £20 a week yes but thats £1k pa (taxable) and its only costing
>> you about £4K. Try getting that return elsewhere!
>>
>>
Haha, yes, I get that. Just not a huge incentive to work for another 5 years and contribute that way is what I meant :)
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>>Just not a huge incentive to work for another 5 years
If you continue to work after the State Retirement age there is no NI payable by employee
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>> >>Just not a huge incentive to work for another 5 years
>>
>> If you continue to work after the State Retirement age there is no NI payable
>> by employee
>>
While that’s a reasonable saving, there is zero chance of me working beyond the state retirement age...I have plenty of other things to occupy my time :) I do have 18 years to fill the 5 years needed for a full state pension, although that’s not the main plank fo my ‘plan’, such as it is. As mentioned above it’s not that expensive to just buy the years anyway. Though an unintended (or maybe intended?) side effect of the oft floated plan to wrap income tax and NI together would be to sweep the retired into effectively paying NI again...
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None of us know for how long we will need to live off pension or savings. Buses may intervene next week, or we may enjoy 30+ years of active healthy retirement.
Pension choices are with most of us for at least 50 years, and possible more. We start contributing (or not) when we are ~ 20. We pay in for ~ 40-50 years. We live with the consequences for a further ~ 30 years.
Since 1970 when I started work the world has changed immeasurably. Pre-Thatcher, pre EU membership, pre internet, pre nationalisation, pre global media, etc. Life expectancy has increased from 67 to 79.
Inevitably we end up with a complete muddle of pension provision - contracted in/out, ISAs, SIPPs, tax reliefs, state pension and retirement age reforms, final salary schemes, defined contribution schemes etc.
All this demonstrates is that we each need to be very aware of the consequences of our own actions. Get what you can from the system and stop worrying about the logic or fairness.
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>> I am generating £1k a year inflation-linked for a one-off £3.2k. To buy that commercially as an annuity would cost what, £20k upwards?
More like £40k.
I have a feeling I've cocked up here. I'm currently receiving 155.87 per week, having taken my state pension at 65 in 2018, so presumably under the current system. It was reduced for a period of contracting out but clearly I had enough years.
I checked as best I could what my options were but I had IIRC over 40 years of contributions and didn't find an option to increase it - I was certainly well disposed to paying for fully index linked income, but as has been noted they don't make it easy. It seems I might have missed an opportunity. I had been intending to delay taking it but early that year I was told that my chance of living more than 5 years was about even so perhaps I was less assiduous than I might have been (my prospects, I am told, have now improved).
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Manatee are you sure it’s too late? A “Which” online state pension article says you have six years after reaching retirement age to do this. A call to the govt Future Pensions scheme 0800 731 0175 will give you a definitive answer. Although the “Future” bit might not be very encouraging as you are already drawing.
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>> Manatee are you sure it’s too late? A “Which” online state pension article says you
>> have six years after reaching retirement age to do this.
Thanks, I'll look into it:)
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If you had 40 years I doubt you can increase it. That was my erroneous thinking earlier in this thread - that I could buy the contracted-out years. I think the purchase is just to buy "missing" years up to the max eligible (now 35 I believe).
I've no idea why my weekly figure seems to be above the max possible but I won't believe it till I see it anyway...
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Just spend your 3 grand on whisky Manatee, it'll have two benefits, you won't have to live as long on a reduced pension, and, you won't care...
;-)
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>> If you had 40 years I doubt you can increase it. That was my erroneous
>> thinking earlier in this thread - that I could buy the contracted-out years. I think
>> the purchase is just to buy "missing" years up to the max eligible (now 35
>> I believe).
That was the impression I got at the time.
As to why you have more than the 'maximum' - crudely I think, there is the new standard pension amount which will be reduced for your contracted out years, but can be increased for any Additional State Pension (SERPS and/or State Second Pension) element earned when you were not contracted out.
The net of that in my case was that I received about £20 a week less than the new state pension, which is currently £175.20 per week.
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Well, I looked again at my forecast after reading this thread. It tells me I have 38 years; it's included two from when I was at school for whatever reason.
It also tells me I'm on for £165 out of a possible £175 a week, and that I can buy two more years for £750 odd each, bringing it up to the full £175.
I don't believe a word of it. Last time I looked, a few months ago, it told me £140. A year ago it told me £85.
Come the day I'll spend it on a packet of jellybabies and that'll be that, is my guess.
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Smokie as per the details in my opening post I already have 42 years NI but the govt still tell me that I can add more. I also had a memory that 35 years was the max but this must refers to something else. I wish I had asked on the call where 35 years came in.
Also my initial pension forecast downloaded this week was £156.55 but with a note that I needed to “continue” NI contributions to meet this figure. As I was not paying NI “continuing” just means their figure assumes I am paying NI for this year. The forecast without current year was £5 less. This tallies with the £5 a week increase available for added years.
It’s confusing and I won’t be sure until January but the helpdesks had all my details inc 42 years and told me I could add the 4 years I am paying for.
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I called them a couple of years back and tehy tried to be helpful but couldn't explain my oddities. Maybe as the date gets nearer I will take it more seriously. Thanks martin aston!
Last edited by: smokie on Wed 7 Oct 20 at 18:13
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You probably need a Govt Gateway account to then check your records on the govt
>> site. Again very easy to set up.
Sometimes it's easy, sometimes not! I've ended up not able to log in but won't let set up another account either.
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Does anyone know if the £40k contribution limit before tax includes the employer’s contribution for a non final salary pension?
Thanks
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>> Does anyone know if the £40k contribution limit before tax includes the employer’s contribution for
>> a non final salary pension?
>>
>> Thanks
>>
Unfortunately it does. But don’t forget that once you have max’ed out the current tax years £40k you can carry forward unused allowance from the previous three tax years (subject to having sufficient earned income to make the contribution from). Carried forward unused allowance is used earliest year first and you don’t have to use it all up at once!
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Forgot to ask...
If using prior years, do you get tax credit for the top up contributions? To put it crudely invest £1000 get £400 back or £1400 invested or is it just the original capital in to the pot?
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£800 paid in is made up to £1000 by the pension company.
To get the other 20%, assuming you are a higher rate payer, will take a tax return to be filled out.
At least that's what happened to me 20+ years back.
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>> Forgot to ask...
>>
>> If using prior years, do you get tax credit for the top up contributions? To
>> put it crudely invest £1000 get £400 back or £1400 invested or is it just
>> the original capital in to the pot?
>>
For prior years you usually contribute gross, and then get the tax relief via your tax return into your back account, unless the contribution is made though payroll. Even then, as a 40%/45% taxpayer you still need to declare on your tax return to get the full tax relief as depending how it’s set up you might only relief at the basic rate automatically. If your employer will support you contributing via salary sacrifice (ie out of untaxed income) then you obviously won’t get or need tax relief. They’ll save employers Ni (13.8%?) as well which some will either pass on to the employee or split with them in some proportion. Or they might keep it to themselves.
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I thought it was worth updating this thread as I have now had my first full month state pension payment.
For anyone considering paying for additional NI just be aware that HMRC progress these cases very slowly. They took my payment for additional years immediately online but several months later it was still not credited against my record. I rang them and they said it was because I had paid for four years in one go (as instructed!) This was allegedly because their system can only take a payment against one year and then it needs manual reallocation to split it.
Several more weeks passed and my online forecast was still not showing the proper, higher amount. I wrote to HMRC to politely jog it along. After a further delay a very competent sounding guy rang me full of apologies. He all but said the delay in allocating my payment was due to the previous person not doing their job properly. After this call the process ran like clockwork with new tax code etc in place and online pension payment to my account.
As stated earlier in this thread people need to do their own research and take professional advice as necessary, including any effect on their workplace pension, but for my circumstances it’s good value.
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Pension underpayment for some women making the headlines again - first highlighted a year ago.
www.moneysavingexpert.com/reclaim/married-women-missing-state-pension-boost/
www.telegraph.co.uk/money/consumer-affairs/200000-women-owed-3bn-unpaid-state-pensions-scandal/
I received a letter from DWP saying they had underpaid my state pension .............
It amounted to 17p per week - the immediately updated my pension by 17p + inflation = 22p/week and said I was due £70+ lump sum. It failed to turn up but it was paid after 2 phone calls - the local Primary School got it for the school fund.
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>> Might take an actuarily reduced pension when I'm 50 next year.
>>
>> Then I can pretend to be an old fart like y'all.
>>
I was 50 in February....does that make me an old fart too ;)
I haven’t really done much in the way of paid employment since this time last year, nor do I see any real reason to do so... Only 5 years until I can get at my DC pension pot, and that’ll fly by I’m sure. I spend much less on car repairs and insurance than I used to...
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State pension top-up - Zero
