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Buying back State Pension/NI 'years' to make a full pension- Simples!!....... NOT!

Discussion in 'Retirement' started by stopwatch, Sep 24, 2018.

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Do you feel that you are fully aware of your situation regarding your future State Pension?

  1. Yes

    5 vote(s)
    33.3%
  2. No

    10 vote(s)
    66.7%
  1. stopwatch

    stopwatch Established commenter

    For those who have insufficient years NI payments, who are considering buying back previous years, I thought it might be useful hearing what I have just discovered from HMRC and the Pensions department (not, by the way, one and the same thing).

    Having worked overseas and only paying NI from there for some of the years, my NI contributions only amount to 32 years. In order to get a full State Pension, the requirement is 35 years. My assumption would have been that I need to buy back 3 of my previous unpaid years in order to get the maximum payment.

    After having spent almost an hour and a half on the phone, I have discovered that it isn't quite that simple.

    So here goes with the facts/most useful things I have gleaned from my call:
    • HMRC and The Pensions Department/Service are not one and the same thing.
    • HMRC manly deal with what class of NI payment you need to pay, either ongoing or as a 'buy back' year. In my case, this was Class 2 ongoing and would have to be decided on any 'buy back' years, but likely also to be Class 2. They cannot tell you anything about how this will affect your future pension provision.
    • The Pensions Department decide what State Pension you will receive based on the numbers of full years you have paid. They cannot tell you anything abut the class of NI payment you need to pay.
    • Although I have paid 32 years, much of this was on the 'old system'. A new system was introduced in 2016.
    • I have up to 6 previous years which I could buy back for around £750 per year (or around £200 per year if HMRC judged that I could pay Class 2 'buy back' as I was overseas at this time).
    • One would assume that, if I bought back 3 more years, I would then have the 35 years required to receive full SP. I was told that I would need to pay a further 5 more years to get full SP (32 + 5 = 37 - go figure the maths??!!)
    • HOWEVER, and this is the key thing, because all of these years are prior to 2016, even if I bought them, they would make absolutely no difference to my SP years/amount.
    • So the bottom line for this is that I need to pay a further 5 years - IN THE FUTURE - to increase my SP to the full amount. Even though I am not working, I would have to pay Class 3 - around £70 per month - voluntary contributions (or the whole year at around £800+).
    So, from this, if you are in a similar position to me and considering buying back previous years, I would suggest getting a State Pension forecast and then contacting Pensions department first (0800 731 0175) and then HMRC (0300 200 3500), to get clarification on your position, otherwise you could be wasting a lot of money for nothing.

    ........ I'm going to lie down now in a darkened room
     
    eljefeb90 and Swani like this.
  2. Sundaytrekker

    Sundaytrekker Star commenter

    Phew, I’m not surprised you need to lie down!

    My guess is that a lot of this is due to the contracted out/contracted in change in 2016. I was surprised by how much difference every year post 2016 is making to my state pension even though I already had almost 40 years full record. As far as I can see, if you are still under state pension age then keep contributing to your national insurance record either by voluntary contributions or by working and earning credit. You need to earn over about £5850 a year to gain credits.
     
    stopwatch and emerald52 like this.
  3. emerald52

    emerald52 Star commenter

    Some are doing exam marking to be eligible to make self employed contributions.
     
  4. stopwatch

    stopwatch Established commenter

    This is the confusing bit. You need '35 years' contributions to get a full State Pension, but you can have 40 years and not have full entitlement. Similarly I need to have an additional 5 years, even though I have 32 years already.

    The amount quoted to me as the minimum to be able to pay NI from salary was £6032 pa. I am not likely to earn this much as I don't intend to work that much, as I want to enjoy my retirement and have a relatively flexible amount of free time.
     
  5. jonnymarr

    jonnymarr New commenter

    I'm pretty sure it was someone on one of these threads who suggested the Royal London pdf guide:Topping up your state pension: everything you ever wanted to know. Might be worth a look. I found it helpful.
     
    emerald52 likes this.
  6. phatsals

    phatsals Established commenter

    There has been a lot on here already about this, perhaps you missed it. It would not be worth buying back any years pre 2016 unless you had less than qualifying years from then. If you did, they would not cost £740 to buy, it's much less.

    You can't 'forward buy' years, they have to have already passed. It was always the case that anyone contracted out of the State Pension would have to have more than 35 qualifying years. If you never contracted out you get the full amount, if you contracted out you paid lower NI which went into a different scheme which you benefited from ( achieving a higher return). To do otherwise would mean you benefit twice, once from lower NI and also from your separate pension, very unfair to those who contributed more.

    FWIW under the old system, 30 years was the maximum for State Pension, but most people work more than 30 years for no additional benefit. Many people had 45 years contributions on their record, 15 of them making not difference at all.

    As emerald said, if you are an examiner you can pay Class 2 NI. I discovered today that once registered as an examiner it stays until you tell the tax office otherwise, even if you only mark for a few weeks of the year. Very handy to know.
     
    emerald52 likes this.
  7. applecrumblebumble

    applecrumblebumble Lead commenter

    I am in a similar position, I have 45 years of full NI contributions and have just convinced hmrc that as an examiner I only need to pay class 2 contributions at £150 a year for a £4 odd a week increase in state pension. Even this will not give me the full state pension in 2021 (50 years NI contributions) but with a good teachers pension I am happy with the outcome.
     
    emerald52 likes this.
  8. stopwatch

    stopwatch Established commenter

    So firstly, excuse my ignorance of these things as I have been working overseas since 2001 and not always up to date. I have just returned a couple of months ago to retire/semi retire and trying to sort out my financial affairs - hence my call to HMRC and Pensions yesterday.

    To clarify with some questions (please):
    • By examiner - what do you mean? marking exam papers? if not, what is this?
    • How do you become an 'examiner'?
    • Am I correct in thinking that what you are saying is, if you are registered as an examiner, even if you only work a few weeks of the year/small income (below the usual required £6,000 ish minimum income requirement), then you can pay the lower Class 2? if so, do you pay this directly yourself as a voluntary contribution?
    • I have tried to do a bit of homework myself and found on the gov.uk website that it states: 'examiners, moderators, invigilators and people who set exam questions' - does this mean that, if you get a job at a local school as an exam invigilator, and register this with HMRC, that you can also pay Class 2 voluntary contributions? and I am guessing that, like an examiner, even if you only do a few weeks each year, this still applies.
    Unfortunately, my teachers pension isn't brilliant, so I need to try to boost this as much as possible and every £££ counts!

    Thanks for your help and patience ACB and Phatsals :)
     
    emerald52 likes this.
  9. stopwatch

    stopwatch Established commenter

    Am I right in thinking that the same applies if you are an exam invigilator?

    (edit: apologies, I just realised I posted the same question above.... doooohhh!!)
     
  10. emerald52

    emerald52 Star commenter

    I think the difference is self employment. An invigilator is paid by the school, an exam marker is self employed.
     
  11. phatsals

    phatsals Established commenter

    When you work as an examiner it isn't as self employed. Tax is deducted but not NI. I have copied the link here for NI rules regarding examiners etc

    https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim74100

    I work as an examiner and have just paid this years NI Class 2. I rang HMRC as I wasn't sure about registering as self employed, I did fill in a form and there is a box to tick for examiners. HMRC told me that I don't need to register as self employed but that I was registered as an examiner. I asked if I needed to do anything for this next tax year and was told that I would stay registered as an examiner until I told them otherwise.

    As @applecrumble said, when you ring HMRC about registering as an examiner you get the runaround. This is because it's not a common occurrence. I copied the link above for your to peruse as leisure and also quote from if necessary, as I did.
     
    stopwatch and applecrumblebumble like this.
  12. applecrumblebumble

    applecrumblebumble Lead commenter

    I am sure there was a thread on here several weeks ago of an exam invigilator who has also managed to pay class 2 contributions so it not just examiners. I found that hmrc just sent me a direct debit and a bill for past years but £150 a year seems good value for a £4 odd increase in your state pension. I presume invigilators just fill in a tax assessment but considered as a special case like examiners and the changes to class 2 NI contributions in 2019 have been put on hold for moment so make the most of it.
     
    eljefeb90 and stopwatch like this.
  13. stopwatch

    stopwatch Established commenter

    Can you clarify what an ‘examiner’ is? Thanks
     
  14. phatsals

    phatsals Established commenter

    Marking papers.
     
  15. emerald52

    emerald52 Star commenter

    For an exam board like AQA
     
  16. Piranha

    Piranha Star commenter

    Not following on from the above, but you can also pay voluntary class 2 contributions if you are self employed in another way. I do a bit of tutoring, and pay my £2.80 a week on that; my forecast is that it will take me up to the maximum pension if I keep on doing this until I reach state retirement age. And, since last year, the first £1,000 income is tax fee. That is income rather than profit, but as I work form home, my expenses are minimal.
     
  17. eljefeb90

    eljefeb90 Senior commenter

    I can confirm that I was told by HMRC that invigilators are indeed eligible to make the class 2 contributions, but you do need to make a tax return. I decided not to do this as I calculated I would earn a little over the lower earnings threshold for a full year's entitlement. This is just under £6000 gross. However, entitlement is calculated on a weekly basis and my work is irregular. I had to pay about £100 to HMRC as a top-up in order to be accredited a full year for 2017-2018.
     
  18. stopwatch

    stopwatch Established commenter

    So I have made a first step and been offered a job as an invigilator at my old school (ie the one which I went to in 1968! - which I am quite chuffed with!).

    It will be a zero hours contract and I will be offered work during exam periods, but can also turn it down/am under no contractual obligation to take it up. This means I can control the maximum number of hours I do (although they can also control the amount I am offered).

    I haven't had the paperwork yet as I only got the offer yesterday afternoon, but when I do, I plan to call HMRC to get the final judgement on my position.

    EF90, can you clarify what you are saying - I am reading this that, if my yearly income goes above my tax allowance (which is about £11,000), then I cannot pay class 2 - is this correct?

    If not, can you let me know what the restrictions are?

    Also, to go self employed, is it just a case of calling HMRC to tell them?

    Based on what Emerald 52 says - 'I think the difference is self employment. An invigilator is paid by the school, an exam marker is self employed.' I am guessing that this is incorrect and, even though I may have a contract with my school, I can still claim self employment as it is a zero hour contract.

    I am also on a zero hours contract with a local swimming school

    Confused.com
     
  19. Piranha

    Piranha Star commenter

    I am not convinced that a zero hours contract does count as self-employed. This link might help - you will see that a distinction is made with those who are 'genuinely self employed'. https://www.gov.uk/government/publi...s/zero-hours-contracts-guidance-for-employers . The employer is still responsible for things like tax and NI when the sums involved are large enough. I am not quite sure why exam marking us stipulated as something which can be treated differently. However, doing a little tutoring seems to be an ideal way of having self-employed income to pay Class 2 NI from, especially as you can earn £1,000 p.a. free of tax. That is my target tutoring income.
     
    stopwatch and border_walker like this.
  20. eljefeb90

    eljefeb90 Senior commenter

    Sorry...been out invigilating! @stopwatch . I have no idea why invigilator and examiners are eligible to make class 2 contributions, but they are (even though they are employed by exam boards/schools). I guess they were allowed this dispensation because their employment is both seasonal and sporadic.
    I may be wrong on some of this, so correct me if I am, but your National Insurance contributions will only be paid over a certain threshold((currently just under £6000 gross) of EARNED income. Your pension is exempt from NI contributions. I earn between £6-7 K. gross, so pay a certain amount of NI insurance anyway. I have topped up what I owe in order to get a full year's contribution. You can only do this retrospectively, based on what you have earned in a given year. My advice would be to not contact HMRC regarding National Insurance until you have completed a full tax year. Your pay for invigilation and as a swimming coach will probably attract basic rate tax. You will be reimbursed if necessary some months after the end of the current tax year.
     
    stopwatch likes this.

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