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Why is 42 years of NI contributions not enough?

Discussion in 'Retirement' started by rooney1, May 14, 2020.

  1. rooney1

    rooney1 Occasional commenter

    I'm sure that someone can explain this in simple terms for me.
    I have 41 years of full NI contributions which gives me a current estimate of £147 per week in October 2023.
    I haven't paid NI contributions since April 2018 - as I have not earned enough - I took my teacher's pension in 2017. - and have done some 'very' part time teaching since then.
    I can pay £703 to make up the contributions for 2018/19 and then again presumably for 2019/2020 which would increase the pension estimate to £167 per week.
    What I don't understand is why 41 years of full contributions is not enough.
    Any help with this would be appreciated.
    Thank you
     
  2. diddydave

    diddydave Established commenter

    Short answer is because they changed how it is worked out.

    I have seen one very good explanation but I cannot find it at the moment.

    Something to do with when you paid them and that for a lot of the time the Teachers Pension was 'contracted out' of the state pension. 'Contracted out' years are not counted as full years and a conversion was made when the new state pension was brought in.

    "Years" paid prior to 2016 were converted to a starting amount so although you only need 35 years many of the 41 you have were the smaller 'contracted out' ones so you won't have the full 'new 35' years.

    Bear in mind that if you worked, since retirement, as an invigilator, examiner or were self-employed then you can ask HMRC to pay the class 2 National Insurance which is much cheaper...though they may be interested in whether or not you paid tax on such income from those years in respect of that work!
     
  3. phatsals

    phatsals Senior commenter

    Because you were contracted out. That means you paid a lower rate of NI, the difference went towards a different pension scheme, in this case Teachers Pension. In short, your contribution was shared between two schemes, your TPS has a greater return that what you would have received from the State Pension.

    As a rough guide, your years pre-1997 were worth around £37pw, that is what you would have had in addition to your basic state pension. There is no equivalent calculation available for post '97 but a notional equivalent of £37 pw would do. If you had stayed solely in the State Pension, with Serps or State Second Pension, you would have had about £200 pw. You would have a return from TPS far higher than this. The maximum number of years that counted towards State Pension was 35, any years beyond that did not count. This was a reduction from the original 41 years for men, with a Pension age of 65.

    As things stand now, you are no longer 'contracted out' you pay full contributions. Not only that, you can increase your entitlement to the State Pension by either earnings or paying for them. Your pension age is later, but your entitlement will be higher. Under the old system, your State Pension would have been around £125/£130 pw maximum.
     
    tuscanydays likes this.
  4. phatsals

    phatsals Senior commenter

    When the system changed, two calculations were made. One under the old and one under the new system, you started with the better of the two.

    New system, (at that time) £155pw, never contracted out, less 2 x £37, (pre and post '97 contracted out), basic pension - £81 pw.
    Old System - £115 (at that time), plus a bit of Serps.

    You're better off with the old system so that's your starting point. You can then increase your entitlement, even though you've contributed for beyond the 35 years required, as long as you're under pension age. There are exceptions to this but it doesn't apply here
     
    tuscanydays likes this.
  5. catmother

    catmother Star commenter

  6. Sundaytrekker

    Sundaytrekker Star commenter

    Yes, it was that explanation. I’m similar with 43 years but still needing two more for the full new pension. If you can afford the voluntary contributions it is most likely to be well worth it.
     
  7. Brianthedog

    Brianthedog Occasional commenter

    Sundaytrekker likes this.
  8. rooney1

    rooney1 Occasional commenter

    Thank you everyone. I will speak to HMRC and see if I can pay class 2. Otherwise I will need to work out how long it would take me to get back the amount I need to pay to make my pension up to its highest amount and decide if its worth it.
     
  9. diddydave

    diddydave Established commenter

    I believe every new year (post 2016) adds £4.10 a week to your state pension.
    So for Class 2 @ £3.05 a week you get it back in 9 months.
    For Class 3 @ £15.30 it would take you 3 years and 9 months.
     
  10. lizziescat

    lizziescat Star commenter

    Perhaps I’m unique but, having been contacted out for 36 years (from a total of 41 years) I will be getting what I ‘paid in’ for ie the old state pension . So I will be getting what I expected. I won’t get what I didn’t pay foro_O.( the serps ? bit). seems fair to me.

    (yes Cameron, didn’t make it clear in his sound bite announcements and the Daily Mail etc didn't make it clear with their headlines. But I found clear explanations on the bbc. )

    ( and there is the generous £730 ish pa payment to enhance this)
     
    Last edited: May 16, 2020
  11. PeterQuint

    PeterQuint Lead commenter

    I checked on this sometime during the last year and hit them to send me an estimate. I even posted a thread here!

    Whilst I can’t remember the exact figures, I remember:

    - At the point I’d worked for 34 years, and been effectively contracted out for 25-30 of them

    - My pension estimate wasn’t far off maximum, so whilst I wouldn’t have the full state pension if I’d stopped working then, it wouldn’t have made much of a difference

    - I’d be up to the full amount in just a few years.
     
  12. PeterQuint

    PeterQuint Lead commenter

  13. PeterQuint

    PeterQuint Lead commenter

    Bottom line, I worked for 9 years ages 16-25, contracting out of SERPS for the last few years of that.

    Then Uni for 4 years.

    Then teaching for 25 years, effectively contracting out there, too.

    Now working in a non-teaching job.

    So I've paid in maybe 5 years full, then 29 years contracted out.

    Pension estimate - should be just under £169 a week, but as I'd contracted out it'd only be just over £150 a week.

    So the first thing - it's not a lot less. If I stopped working tomorrow I'd be fairly close to the full pension.

    Then my estimate says I need to work 4 more years to get up to the full amount.

    So the second thing, it doesn't take a long time to catch up. Four more years will do it (actually 3, see below).

    Based on the figures given, I catch up around £4.50 for each year I work.

    So the third thing is, I can see how much I'll get (approximately) if I suddenly stopped working at any point over the next few years. Just deduct £4.50 a week for each year I'm short.

    By the way, these estimates only take you to the previous April, and I asked for this one in January. As we've now passed an April, I can tick off one of those 4 extra years already. So that's just 3 more years to go, and my current amount should be up to around £155, so I'm just £13.70 a week (£712.40 a year) short.
     

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