Wednesday, 14 October 2015

FILL THAT GAP - reach pension age from 6 April 2016

These rules apply to men born 6 April 1951 or later and women born 6 April 1953 or later. There are different rules for older people

You need 35 years of National Insurance contributions to get a full state pension. If you have fewer than 35 years National Insurance contributions you will get a reduced pension. So if you have 21 years you will get 21/35ths or 60% of a full pension. 

It may be possible to pay some extra contributions now to fill that gap. They are called voluntary Class 3 National Insurance contributions. But the rules about which gaps you can fill are complex and can seem unfair.

Contributions at work
You will have got National Insurance contributions by being in work and paying full Class 1 contributions. You may not even have noticed as they are just deducted from you pay. If you earned very little then no NI contributions would have been paid. For a narrow band of earnings above very little but below where you actually started to pay them then you would have been credited with them. 

Reduced rate contributions paid by some married women do not count. If you have gaps caused by paying those contributions you cannot fill them. It was a very unfair system but nothing can be done about it now.

If you were self-employed and paid Class 2 contributions they count towards your pension equally with Class 1.

Credits
Some people who did not pay contributions were credited with them. The rules about credited contributions are very complicated. But broadly speaking you may be able to get credits for years you 
  • Got child benefit for a child under 16 (that changed to under 12 from 2010)
  • Were unemployed and looking for a job. Usually you would be on Jobseeker's Allowance - but you may get credits even if you were not 
  • Were on employment and support allowance, or were eligible for it, or got statutory sick pay
  • Received working tax credit 
  • Cared for someone who was sick or disabled
  • Got maternity or paternity benefits 
  • Were male and did not work in the few years approaching the age of  65.
Some credits are given automatically; others have to be claimed. The gov.uk website publishes a full list of credits and which have to be claimed. There are also details of how to check your record. It is all ridiculously complicated but can be very worthwhile!

If you find you still have gaps in your National Insurance record and you have less than 35 years contributions you may be able to fill them now. 

Nine years back
You can pay contributions back to 2006/07. Each tax year from 2006/07 to 2009/10 will cost you £689. Contributions for years 2010/11 to 2014/15 may be a little less or a little more than that. The cost to pay voluntary contributions to fill the current year 2015/16 is £733.20.

You must buy the extra contributions by 5 April 2023. But you may find they are more expensive if you buy them after 5 April 2019.

Should you pay?
It is immensely complicated to decide if it is worth paying to fill gaps. The rules are complex and there is plenty of time to pay the contributions in the future so it is probably as well to wait until after 2016 to do so when things will be a bit clearer.

But in summary: If you have fewer than 30 years contributions under the old system it is probably only worth filling old gaps to bring that up to 30. However, in some circumstances it may be worth filling old gaps to bring it up to 35. If you can do so it is always worth filling gaps up to 35 by paying contributions from 2016/17. And it may be worth ensuring you pay contributions under the new system even if you have 35 years contributions.

Confused? Most people are! Wait until things are clearer after 6 April 2016. Still time to take action then.

In exchange for one year's contributions you will get extra pension of at least £225 a year from the date you pay. So the payback time for the cost of the contributions is less than four years - or a bt longer if you pay tax. The pension you buy is new state pension and that should rise by at least 2.5% a year until April 2020 and after that in line with earnings, unless the law is changed.

More information
Paying Class 3 voluntary national insurance contributions

22 October 2015
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