National Insurance contributions, or lack thereof

[Il Duce]

Doing a bit of checking the other day on Gov.UK with regard to the State Pension and it appears that, despite being in my 41st year of NI contributions through my RAF pay, I will still not qualify for the full State Pension when the appropriate time comes. I, and many others it would seem, was "contracted out" of making full NI contributions by my employer at some point. I can't tell when this happened and the staff in PSF can't tell me either. If I'm being slow on the uptake on this matter and should know better, I'll take the hit however, plenty of people I work with are similarly in the dark.
Any wise owls out there who know what the score is on this one?
My strong advice on this would be to check your status via the Government pensions website. It takes a few minutes to set things up, but you may find the results interesting / worrying.

[MAINJAFAD]

1986 is when it happened. Blame Thatcher!!!!

[MPN11]

My NI history post-RAF is sufficiently complicated that I don't think I want to go there.

Is there a useful link?

[MAINJAFAD]

The link is below. You have to register and there is a security function involving texts to a mobile phone. Also shows income tax as well.

https://www.gov.uk/check-national-insurance-record

[tucumseh]

Found this out after retirement. MoD don't tell you this! 46 years contributions to date and I'll be 20% down on what I expected when I reach 66.

[MPN11]

The link is below. You have to register and there is a security function involving texts to a mobile phone. Also shows income tax as well.

https://www.gov.uk/check-national-insurance-recordThat's helpful and typical of the 21st Century. If you don't have a Mobile phone, you cease to exist!!

[MAINJAFAD]

Found this out after retirement. MoD don't tell you this! 46 years contributions to date and I'll be 20% down on what I expected when I reach 66.

Knew of the change in the law when it happened, but thought the opt out was something done by the individual to get out of SERPS, not automatically if you worked for the Crown and I don't recall any information about it being put out at the time.

[Exrigger]

I found that out this year as well, however on another thread someone pointed out that if you were employed post military service and continued to pay in NI above the 35 years (?) required for a full state pension, you would then get the full amount (I think 7 years was the minimum), trouble was my civilian pension was also classed as opted out, so no full pension for me.

[Al R]

Opting out, or being opted out, meant lower NIC. The idea was, you'd supplement retirement provision yourself. Spare a thought for members of the British Steel Pension Scheme as the scheme evolves into BSPS2 or passes to the Pension Protection Fund. In retirement, they stand to lose index linked raises on all pre 1997 contributions, unless they transfer out.

[PDR1]

Not sure why this attracts so much ire. What you did was contract out of the 2nd state pension (SERPS) so that you could get your Forces pension without paying tax on it. Pretty well everyone who had a separate (forces/company/WHY) pension was strongly advised to contract out of SERPS to avoid your 2nd pension being eaten away in tax. Overall you're better off.

Could it possibly be that this was explained, but at that age you weren't really paying much attention to what some old duffer was saying about pensions (not a subject that was high on your personal priority list at the time)?

PDR

[Background Noise]

This has been covered at length on this forum:

http://www.pprune.org/military-aviation/598723-another-pension-q.html

http://www.pprune.org/military-aviation/592865-pension-national-insurance-contributions-retrospective-change-opted-out.html

Smoke and mirrors ......... basically your COPE amount is already being paid within your Armed Forces Pension and is subtracted from your State Pension entitlement

Not quite - your state pension is reduced by a much smaller amount than your COPE amount. Work out the difference between full state pension and your forecast, and then check the COPE amount on the next page.

Could it possibly be that this was explained, but at that age you weren't really paying much attention to what some old duffer was saying about pensions (not a subject that was high on your personal priority list at the time)?PDR

I'm pretty sure you are right. I do remember being told about contracting out, I think it was even mentioned on our pay statements, but I didn't really have much of a clue - or much interest. I do recall us being told it was a good thing. It may not however have been made apparent to subsequent joiners.

Overall, as said, you are likely to be better off due to contracting out.

[Al R]

Technically, you could argue that you didn't want to be contracted out and wished to reserve your right not to be so. At which point, of course, you'd have ceased to be a member of the pensions scheme and lost your death in service benefits.

[PDR1]

I'm pretty sure you are right. I do remember being told about contracting out, I think it was even mentioned on our pay statements, but I didn't really have much of a clue - or much interest.

This is where I could be smug and sanctimoneous because I made a conscious decision to joing the (final salary) pension that I'm still in, so clearly I was more grown up - but if truth be told I was just lucky. For the first 10 years after leaving Uni I worked for companies that had non-contributory* pensions, and then in 1990 I joined my current employer. I also came into a small legacy at the same time, and it required some formal accountancy stuff because it came in the form of a "trust" (don't get the wrong idea - my monthly income from this "trust fund" was enough to just about cover the cost of an hour's C182 rental every few weeks to remain current).

So I found myself forced to get iunvolved with some financial planning, and the advisor firmly told me that it was ESSENTIAL that I joined the pension scheme of my new employer ASAP, because I had a girlfriend an they have a habit of falling pregnant (an accurate prediction, as it transpired). So at that point I contracted out of SERPS and joined the pension scheme, something I would have deemed dangerously conventional and domesticated as well as too low a priority to spend time on when there were still aeroplanes to be flown and pubs to be drunk-dry. So I was just lucky. Every now and then the devil vomits in someone ELSE'S porridge bowl and overlooks mine!

Of course seven years later the prediction came true, and marriage withdrew the time & funding to maintain the PPL, but at least I know that my family will have the umbrella of a rather rare final salary pension. That was 20 years ago, and I'm still wondering what the heck happened to my life and how I became such a boringly conventional person...

PDR

* this is a misnomer - it just means that the pension membership was compulsory rather than optional

[Bladdered]

I think we have been around this buoy again recently. It will take until 5 Apr 2018 and nearly 12 years out for me to have enough stamps to qualify me for the full entitlement. But I knew I was opted out when I joined - I say I knew but actually I didn't understand fully what this meant. Indeed, I could have transferred the small amount of pension that I had accrued with a company I had joined when I left school to add years to my RAF pension but until I was told this, it was too late 4 years after Cranditz when I thought it would be a good idea, I don't recollect ever having been told although that index linked gem will keep Mrs B in shoes in our retirement :).
I hope that financial planning is on the curriculum nowadays (I doubt). Financial bit of resettlement planning was blox too - or was I not listening again. Took my own research to discover that you could get the NI contributions back for any period when you remained in the service but had already started work in Civvi street.

[charliegolf]

Found this out after retirement. MoD don't tell you this! 46 years contributions to date and I'll be 20% down on what I expected when I reach 66.

So did you pay for your service pension and NI contrubutions every month you were in; or was the NI diverted* to fund your service pension? If the latter, does it not mean you'll get everything you earned (in pension) from the service, and everything NI conts can buy in state benefits outside your service?

CG

*in name only, of course, it's not ring-fenced

[vascodegama]

I wrote to the pension people in Newcastle and asked them how they had come to the figure that they had. It is a complicated way that they get your starting figure of 2016 when the new pension came into force. Eventually I gave up and put all the sharp objects away. The really galling point is that there is no correlation between a contracted out and a contracted in year despite there being well documented figures (CO we paid 88% of CI). What this appears to mean is that you could have made more than enough equivalent payments to make 35 years of contribution but that would be too easy.

Also lets not forget that NI goes towards the NHS which we did not use so much when we were serving esp when we actually had service hospitals.

[Melchett01]

Globe Trotter

I am rarely flummoxed by Pay/Pension/Entitlement rules and Regs, and policy - in this case I am. Not because I do not think that it is fair ........ but because I judge it is not clear.

Absolutely! It's as clear as mud in most cases. I'm reasonably intelligent (on my day and with a fair wind), used to be vaguely numerate enough to pass Meteorology courses and can now interpret and where required engineer policy to benefit ops. Ask me to understand pension issues and calculations and I break out in a cold sweat.

I've recently been looking into my own pensions and frankly I could be 180 degrees out in my calculations and understanding. Despite being contracted out, the HMRC website suggests I'm in line for a full state pension at 67 or whenever they do pay it. I can only assume that's because the reduced qualifying period and number of years left to run mean my contracted out time is made up by the years I have left contracted in. That's my assumption, the website isn't clear at all.

And don't even start with trying to fathom MOD pensions. That took 2 afternoons and help from FPS to resolve (long term forecasts will likely undershoot as they can only calculate your historical pay and pay up to the time you request a forecast; any forecast going forward doesn't factor in any increases, including annual increments so will be less accurate over time despite JPA holding all the relevant data.)

That so many relatively intelligent people have to come on here to ask what's going on, relying on a few in house 'experts' and the wisdom of the crowd is as much as a scandal as anything else.

[Nigerian Expat Outlaw]

It's a complete clusterf**k. I got a letter out of the blue 3 years ago telling me that I had fulfilled my obligations vis a vis NI contributions (I had been paying Class 3 for 25 years while working overseas after 15 years of Class 1 payments in the mob) and that I was qualified for a full pension when I reach 66. So I stopped paying.

A pension forecast request confirmed this. The system, such as it is, obviously kept some sort of track.

NEO

[oldpax]

Nothing to do with service pensions(I don't have one)but I was several years short on my NI contributions,You can pay back up to five previous years which I did.Also if you defer your state pension one year you get an extra 10%.Mind you its fifteen years since I got mine!!

[lsh]

I have looked into this in great detail too, and it does seem quite impossible to get a definitive answer!

COPE is one aspect, another is the change in pension age (Old / New State Pension amounts).

One of the problems seems to be that they changed the qualifying years required to access the "new" state pension amount. So you can check on the site and be fully "paid-up" (but that is calculated in "old" qualifying years)!
(Also beware: The headline figure, in colour, stated three times, makes it look like you are OK, you have to go to the small B&W figure later on to see how much you actually have earned!)

If you speak to them, they will do the calculations & tell you if you fall short in "new"qualifying years (35, as Vascodegama says). Then, provided you are in the window, you can pay extra to access the "new", higher, state pension flat rate (c£8k). It is about £720 to buy each extra year. At c£3500 to buy all five years (max allowed), I thought it a worthwhile risk. You can pay in installments.

If you can afford to defer, as oldpax says, that is good. But the rate has now dropped to just over 5% for each year of delay in pickup!

lsh
:E

[Onceapilot]

Beware folks, any calculations you make should be balanced with a healthy dose of balance-of-risk. They will continue to screw about with these figures and, there is a risk that you may not get the return you expected. I for one, have decided not to pay for extra years to make the full payment, despite having full+ contributions of 41 qualifying years. Just my opinion.

OAP

[lsh]

Yes OAP, and I do not think you are wrong - a personal choice I guess.

You also make a valid point about the 35+ years of contributions (that many of us will have made), do we get a refund.....enhanced pension.....you guessed it!

lsh
:E

[glad rag]

Found this out after retirement. MoD don't tell you this! 46 years contributions to date and I'll be 20% down on what I expected when I reach 66.
Tell me about it, this is NEWS to me.

I suppose the info may well have been available, however squadron life and 14 hr shifts do not leave time for much else when you are working for your money.!!!

[Pontius Navigator]

I bought in for Mrs PN, she has now passed into profit.

On delaying, your risk, essentially you make your own avtiuarial assessment.

[MATELO]

just a bit more info..

Contracting out ended in April 2016, but your contracting-out history will still impact how much state pension you get.

In addition to the basic state pension, the state previously provided a second-tier top-up pension, based on how much you earned. Introduced in 1978 and originally called the State Earnings Related Pension Scheme (Serps), it became State Second Pension (S2P) in 2002.

Before 2012's rule changes, employees were allowed to 'contract out' of this additional pension. In exchange for lower National Insurance contributions, they gave up part or all of it and received extra pension from their occupational scheme or personal/stakeholder pension instead.

Until 1988, people could only contract out if they were members of a defined benefit (DB) occupational pension scheme. In 1988, the government extended this to defined contribution (DC) or money purchase occupational schemes and personal pensions.

It gave incentives to encourage people to leave the state earnings-related pension scheme (Serps). For the first five years of the scheme, the government paid an extra 2% of your earnings into your personal pension. By 1992, more than 5 million people had left Serps for a personal pension.

Rule changes for contracting out
Defined benefit pension scheme

If you've been in a contracted-out defined benefit (DB) scheme, you and your employer have paid a slightly lower National Insurance (NI) contribution. This reflects the fact that neither of you have contributed to the state additional pension. From April 2012, only those in a defined benefit (DB) scheme have been contracted out and paid a lower rate. Those in a defined contribution (DC) scheme were contracted back in and paid National Insurance at the full rate. They accumulated state second pension (S2P) between 2012 and 2016.

If you contracted out through a DB scheme, you were promised a certain amount of pension, in place of the additional pension you were giving up. With the way the system works, it's impossible to lose out if you were contracted out into a final salary scheme before April 1997. However, the amount of protection was reduced from 6 April 1997, when the 1995 Pensions Act came into force. The link with the additional pension was broken, so it's possible that you could lose out.

Contracting out on a DB basis ended in April 2016, when the government’s state pension reforms came into force. People qualifying for the state pension before 6 April 2016 will get less additional state pension if they've spent time contracted out, and those qualifying on or after 6 April 2016 will get a lower 'starting amount'.

Defined contribution pension scheme

From April 1988 to April 2012, employers were allowed to contract people out into defined contribution (money purchase) occupational schemes. If you contracted out through an appropriate personal pension (APP) or appropriate stakeholder pension (ASP), you and your employer paid the same NI contributions as before, but some of this was rebated. This amount is known as your NI rebate. Tax relief was added to the rebate, and this total amount was invested, and at a retirement date was used to provide benefits called ‘protected rights’ (see below).

Unlike defined benefit (DB) schemes, there was no guarantee that your eventual pension would match or beat what you would have received if you'd stayed with the additional state pension. The final amount depended on the performance of your investments.

Since April 2012, individuals in these schemes have been contracted back in, and their National Insurance contributions were no longer rebated but went directly towards the state second pension (S2P) they started to accumulate.

Protected rights

Up until April 2012, protected rights included:

A retirement pension that can be paid from age 55 onwards, to be paid through an annuity or income withdrawal. You are allowed to shop around for an annuity if you want to, but the annuity rate on a protected rights annuity had to be unisex.
If you were married and wanted to annuitise, you were required to buy a joint life annuity, rather than a higher-paying single life annuity.
A pension for your spouse or civil partner if you die before retirement.
The right to take income drawdown – but only capped drawdown, which meant that you couldn’t make unlimited withdrawals or use flexible drawdown.
Many people had accrued substantial amounts of protected rights, but because of these restrictions, they had been unable to make full use of them. However, in April 2012, protected rights were abolished.

https://www.which.co.uk/money/pensions-and-retirement/state-pension/guides/what-was-contracting-out

[Onceapilot]

I bought in for Mrs PN, she has now passed into profit.



And good luck to her! :ok:

I am guessing though, that Mrs PN has drawn her pension from age 60 and, that she was able to buy her extra years at the very reasonable rates several years ago and, to the earlier 30 qualifying years requirement?
Many Ladies today have seen the pension age rise to 67/68, are faced with much more expensive buy-in rates and must reach 35 qualifying years for full entitlement. On top of all that, I think it will all change again before Mrs OAP or I reach State retirement age....

OAP

[Pontius Navigator]

OAP,
Sort of.

We were screwed when child benefit was in my name and she wasn't working. We either were not informed or missed that detail. And good luck to her! :ok:

I am guessing though, that Mrs PN has drawn her pension from age 60 and, that she was able to buy her extra years at the very reasonable rates several years ago and, to the earlier 30 qualifying years requirement?
Many Ladies today have seen the pension age rise to 67/68, are faced with much more expensive buy-in rates and must reach 35 qualifying years for full entitlement. On top of all that, I think it will all change again before Mrs OAP or I reach State retirement age....

OAP