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New armed forces NI credit explained

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24th Jun 2016
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There has been a fanfare of publicity now that spouses and civil partners of armed forces personnel are able to claim a ‘new’ national insurance (NI) class 3 credit designed to maintain entitlement to the state retirement pension.

But this runs alongside the old system of class 1 credits, which access a wider range of benefits, so eligible individuals will need care choosing the best option.

The old

From 6 April 2010, class 1 NI credits were introduced for those accompanying spouses and civil partners in the armed services on deployment outside the UK.

It recognised the fact that overseas postings are likely to disrupt employment patterns, meaning NI contributions are not kept up. The knock on effect is that eligibility to state benefits can be diminished – state retirement pension being the most significant casualty.

These class 1 credits are wide in their scope: they help make up an individual’s contributions record for the state pension, and also help with conditions of entitlement to all contributory benefits.

The new

From 6 April 2016, class 3 NI credits can be claimed for the tax years from 1975-76 and any subsequent tax years in which there is a gap in NI contributions record.

Class 3 credits count only towards state retirement pension and currently, bereavement benefits – though from 6 April 2017, bereavement benefits will be replaced by bereavement support payment, to which NI credits will not give access.

Parallel systems

This effectively means that there is now an option for class 1 or class 3 credits.

As the gov.uk website states: “The class 1 credit will continue to be available after 6 April 2016 and may be more beneficial to you than the new class 3 credit as it provides entitlement to a wider range of benefits.”

Who can claim?

The ‘new’ class 3 credits can be claimed by the spouses or civil partners of armed forces personnel, who have accompanied them on assignment outside the UK, provided that the relevant member of HM Armed Forces was insured under the UK national insurance scheme. They are available for women born on or after 6 April 1953, and men born on or after 6 April 1951. 

It is still possible to claim even if there has since been divorce, dissolution of a civil partnership, or death of one of the parties, so long as the relationship existed at the time of posting.

Married women who have elected to pay reduced NI contributions are not eligible for the credit.

Critical dates and claims procedure

Depending on when the service overseas took place, there are different rules. The critical date is 6 April 2010.

For periods of service outside the UK from 6 April 2010, class 1 credits should be claimed by the end of the tax year following that in which the posting ended. So for a posting that ends in June 2016, a claim would have to be made by 5 April 2018.

The applicant completes the MODCA1 form, together with signature and stamp from the appropriate Unit Welfare officer. The applicant then submits the form to HMRC.

Spouses and civil partners of forces personnel who have recently returned to the UK after a posting elsewhere and who are still within the time limit to claim are urged to do so in view of the wider benefit rights accruing.

For periods of overseas service before 6 April 2010, or any periods since then, when the above time limit has been missed, a claim is made by applying to HMRC.

Here credits will be the more limited class 3, giving access to State pension.

Help for heroes?

According to the British Legion, the protection afforded by access to class 3 could impact up to 20,000 forces dependants, helping keep up state pension entitlement.

Lower than average employment and lower than average income among UK veteran households were reported in a survey of armed forces households carried out by the British Legion in 2014.

The survey also found that working age dependants of UK veterans were less likely to be employed than those in the general population – 56% as against 67%. The widows of armed forces personnel reported a low average income, of £13,100. Younger pensioners, in the 60-64 age bracket, were also more likely to report a lack of money.

Armed forces covenant

The ‘new’ access to class 3 is part of the armed forces covenant being implemented by defence secretary, Michael Fallon. Ensuring ‘that service personnel and their families are treated fairly,’ is key to the covenant.

However, with the option for class 1 and class 3 credits running in tandem, forces families are still going to need care to make sure they keep their finances on the right side.

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