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Shortfall of NI contribs but 39 completed years

Shortfall in NI contributions inspite of 39 fullyears

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Following up my post 9th July I have further information which I am puzzled by.

Client has 39 full years of contributions 9 incomplete years (2 recently and 7 from the late 1980's). 2 more years to go until retirement. They were at some point in a cntracted out pension.

I thought you only needed 35 years of contributions to get the full state pension.

Their forcast is saying the current forecast is £146 per week; if next 2 years are made it will b £156 per week. Without the shortfalls  the pension would be £171 per week.

To make good recent shortfalls voluntary contributions of approx 750 are needed for 17/18 & 18/19.

Couple of questions.

How could there be shortfalls if 35 full years have been contributed

Are we, as accountants, allowed to advise re voluntary contributions or is it IFA territory?

Replies (52)

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RLI
By lionofludesch
27th Jul 2020 14:46

Pension at the moment is £175.20, not £171.

I had something similar myself. Docked £2.74 with no explanation then, mysteriously, two months later had the £2.74 restored. Again, no explanation. I never worked out what the £2.74 was supposed to be a proportion of.

All you can do is ask for an explanation and dispute it where appropriate.

I take it you've checked out his record.

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Red Leader
By Red Leader
27th Jul 2020 14:51

Further to Lion's point, it's worth double checking that the years in the 1980s don't qualify at all. For example, if the client was not working and receiving child benefit, this can favourably affect the record.

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Scooby
By gainsborough
27th Jul 2020 15:03

This question gave me a sense of deja vu, so I Googled and, weirdly, an almost identical question appeared on the This Is Money website 2 years ago: https://www.thisismoney.co.uk/money/pensions/article-7240605/Why-dont-st....

Re the "advice" bit, I usually just state the facts, e.g. if additional contributions of £750 were indeed payable (subject to the comments above) and the result was £15 more State Pension per week, then they would effectively get that those extra contributions back after 1 year's worth of State Pension being received.

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By K81
27th Jul 2020 15:06

was the client contracted out with a company pension scheme at some point, many people are, this reduces the maximum state pension that you will receive.

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Replying to K81:
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By raju m
29th Jul 2020 12:07

£171 is the basic pension.

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Replying to raju m:
RLI
By lionofludesch
29th Jul 2020 12:14

raju m wrote:

£171 is the basic pension.

It's not what my bank statement says.

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By K81
27th Jul 2020 15:06

was the client contracted out with a company pension scheme at some point, many people are, this reduces the maximum state pension that you will receive.

Thanks (1)
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By lesley.barnes
27th Jul 2020 15:14

Agree with K81 - you mention that at some point they were contracted out of the state pension by an employer. They should get a pension from the employers scheme. My husband worked from 17 years old to 65 and was expecting a full pension but his is reduced because he contracted out in an employers scheme. I would get your client to ring the DWP and check if this is the case.

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Hallerud at Easter
By DJKL
27th Jul 2020 15:28

It will be the contracting out.

I have a daft number of years but because I contracted out for the maximum years possible I am down a little, I was at £158.75 pw last October with at the time a possible max of £168.60 pw, apparently I will get up to max at age 63 (60 now, 59 last October), then again I started paying qualifying NI in 1976 when I was 16 and still at school, paid though most of university years (all but my PG year) so do have a lot of qualifying years relative to my age.

(Though not as good as my other half's Council pension where she has something daft like 50 years service and is only 60 years old (purchased years using an earlier pension pot she accumulated)

Edit- Just rechecked online, now on £169.97 pw to 5/4/20 with two more years to catch up to the £175.20 forecast, I had at 5.4.20 40 full years and in total four years I have missed but the contracting out means I still need two more years for the full amount.

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Replying to DJKL:
RLI
By lionofludesch
27th Jul 2020 15:24

I got mine in full, despite being contracted out or company pension for five or six years.

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Replying to lionofludesch:
Hallerud at Easter
By DJKL
27th Jul 2020 15:37

You are I suspect older, I will be there at age 62 despite contracting out from the mid 1980s through to whenever contracting out contributions to SIPPS/PPs was stopped (was it about 2006)

Best decision I ever made as even with the market drop re Covid the contracting out contributions alone ought to pay a pension greater than the state pension. My only regret is up to AE I never had any employer contributions, apart from contracting out all the pension contributions over all the years were made by me and I really begrudged them when the kids were small and the mortgage was large.

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Replying to DJKL:
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By bettybobbymeggie
28th Jul 2020 22:06

I am a mere snip at 48 and contracted out of SERPS for a few years (COPE estimate of £24.85) but have 29 years in the bag and a forecast telling me I need another 6 for the £175.20. Weirdly my wife (44 and who also contracted out of SERPS for a few years) has 27 years and a forecast of 5 more years for the same amount.

Like many others things I have stopped trying to understand this.

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RLI
By lionofludesch
27th Jul 2020 15:21

On the investment advice point, I think it is investment advice.

Pay this and you'll get this back.

Sounds like investment advice to me anyway.

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By memyself-eye
28th Jul 2020 10:26

Not investment advice - merely being prudent - I advise all my clients to check their state pension entitlement and to endeavour to maximise their entitlement - too many get to 67 and then realise they're not getting anywhere near the full state pension.
Voluntary class 2's are cheap compared to the loss of a year's entitlement
Guess who they will blame then.....

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Replying to memyself-eye:
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By Paul Morton
28th Jul 2020 10:37

I do exactly the same. I get my clients to check their position and to pay voluntary Class 2 if they are down on years. I'm doing exactly the same, need 4 more years after working for more than 43 years being contracted out.

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Replying to memyself-eye:
RLI
By lionofludesch
28th Jul 2020 10:55

memyself-eye wrote:
... too many get to 67 and then realise they're not getting anywhere near the full state pension.

Surely that's never happened yet. We're not even at 66 at the moment.

Quote:
Voluntary class 2's are cheap compared to the loss of a year's entitlement

Oooh - that sounds like investment advice !

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Replying to lionofludesch:
Hallerud at Easter
By DJKL
28th Jul 2020 11:40

It is certainly not currently 67, I currently get mine in May 2026 when I am 66 years and one month old- then again to pay for Brexit/Covid maybe it will soon be 67,68,69,70?

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Replying to DJKL:
RLI
By lionofludesch
28th Jul 2020 11:57

After this current batch of transitions to 66, which ends in a couple of months, the next transitions to 67 are phased in for folk born 1960/61 and then to 68 for folk born 1977/78.

All that will take us to 2046.

Things could change, of course.

Still - not my problem. By that time, I'll be far more concerned with whether the extra five bob a week gets paid to the over 80s.

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Replying to lionofludesch:
Hallerud at Easter
By DJKL
28th Jul 2020 12:06

You could perhaps give half a crown a week to two grandchildren. In my dad's case it would have been nearer sixpence to eleven of them with a warning not to spend it all at once (The cost of living did latterly start to pass him by, I am already myself going that way with the odd "how much" now exploding from my mouth)

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Replying to DJKL:
RLI
By lionofludesch
28th Jul 2020 12:43

DJKL wrote:
..... I am already myself going that way with the odd "how much" now exploding from my mouth)

Yes - I say that a lot.

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Replying to lionofludesch:
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By LAMBERTCLERICAL
29th Jul 2020 11:29

Ah, the old Yorkshire Motto!

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Replying to LAMBERTCLERICAL:
Hallerud at Easter
By DJKL
29th Jul 2020 11:36

Yorkshire- where money is concerned twinned with Scotland.

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Replying to DJKL:
RLI
By lionofludesch
29th Jul 2020 12:16

It pains me when Mrs Lion buys the same bin bags at Tesco for £1.45 that she could get from Home Bargains for 85p.

And don't let me start on the fancy ones with the draw strings.

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Replying to lionofludesch:
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By memyself-eye
29th Jul 2020 14:55

it is 67 for those retiring soon ( I got my full pension from last November at age 65 and a half...) - a bit late then to top up!
If voluntary NI contributions count as 'investment advice' then I'd better give up on this whole accountancy thing.

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Replying to memyself-eye:
RLI
By lionofludesch
29th Jul 2020 15:07

memyself-eye wrote:

it is 67 for those retiring soon ...

Depends what you mean by soon. I'm not seeing 6th March 2028 as "soon".

But it's a subjective call, I suppose.

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By Michael Davies
28th Jul 2020 10:46

Yes unless there is an error somewhere it’s COP.Its nightmare to work out though.The other point on this is what a rip off COP is.If the occupational pension is a poor return; a triple (or maybe double in the autumn statement)lock state pension looks very good value.My COP loss is considerable and my equivalent occupational pension looks poor value in comparison.Sue the IFA ? I don’t think so.The State Pension loss for women over 60 appeal decision is this week isn’t it ?

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Replying to Michael Davies:
RLI
By lionofludesch
28th Jul 2020 11:44

I got a letter from the Pru saying that my company pension is worth £3036 and they expect the return on that to be -1.95% (yes - that's minus) over the next 9 years.

What sort of folk work on the investments at the Pru ? Why not just stick it in a current account if you're that bad at investing ?

The forecast is for it to be worth £2,350 if I'm daft enough to leave it there. To be fair, I can't remember how much I chipped in but I reckon it was £1,175 so I've doubled my money. However - my employer chipped in £1,175 as well so the pension will have made precisely £0.00 if all that comes to pass.

It's all a bit of a coincidence.

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Replying to Michael Davies:
Hallerud at Easter
By DJKL
28th Jul 2020 11:48

May just be luck of the draw, good/poor investment decisions, low/high contracting out contributions, but whilst I now have contracted out monies mixed with other pensions, so splitting out which pension part has done what is tricky, I think my contracting out part by itself will add circa £8k to £9k a year to my pension, so state pension of £9k and contracting out extra on top the same (and also with 25% of it tax free).

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Replying to DJKL:
RLI
By lionofludesch
28th Jul 2020 15:55

Well, originally, it wasn't dealt with by the Pru. The letter I had from my firm told me it was invested with Scottish Windows. I thought it was a typo at the time but it's looking like they may indeed have handed it over to a firm of glaziers in Auchtermuchtie.

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Replying to lionofludesch:
RLI
By lionofludesch
29th Jul 2020 12:23

lionofludesch wrote:
I thought it was a typo at the time but it's looking like they may indeed have handed it over to a firm of glaziers in Auchtermuchtie.

I googled them. They're actually in Helensburgh.

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By arthurallan
28th Jul 2020 10:59

Many thanks for feedback. I think we will write to Future Pension Centre and query the amounts and get record confirmed in more detail

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Replying to arthurallan:
RLI
By lionofludesch
28th Jul 2020 11:33

If they tell you how they've calculated the pension, let us know.

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By arthurallan
28th Jul 2020 11:35

Class 2 contributions have been mentioned here. Do you not have to be self employed to be able to make voluntary Class 2 contributions. It wouldn't seem right to just say you are self employed (when you are not really) for the sake of making Class 2 rather than Class 3 voluntary contributions or is that allowable?

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Replying to arthurallan:
RLI
By lionofludesch
28th Jul 2020 11:45

Buy and sell stuff on eBay.

But not at a loss of more than £600 pa.

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Red Leader
By Red Leader
28th Jul 2020 12:58

This thread has caused me to re-check my State pension forecast.

43 years up to 5.4.2019

Entitled to £175.20 when I reach State pension age in a few years.

Your COPE estimate is £19.54 a week. This will not affect your State Pension forecast.

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Replying to Red Leader:
Hallerud at Easter
By DJKL
28th Jul 2020 14:12

Yours is slow to update, when I checked mine yesterday it had up to 5.4.20 on it.

Edit, just checked,my COPE est is £63.04 pw, but two more years and it is all apparently caught up.

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David Ross
By davidross
29th Jul 2020 10:29

I worked nine years for the Inland Revenue! Although I now get about £200 a week employers pension (very welcome) it knackered my contributions history

Happily I am able to make up the balance to Basic State Pension before I reach 66 in 2022

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Replying to davidross:
RLI
By lionofludesch
29th Jul 2020 10:35

davidross wrote:

I worked nine years for the Inland Revenue! Although I now get about £200 a week employers pension (very welcome) it knackered my contributions history

No wonder our taxes are so high.

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By Michael Davies
29th Jul 2020 10:42

My COPE the last time I checked was £100 a week.Circa £5000 a year extra. Have two additional pensions;one is a full final salary Public Service pension,on which the guy who jumped from being an MP to the other side said there was no obligation to index pre 1988 entitlement.Theresa May stepped in and said the Government would “honour” the original understanding of public sector pensions.My other pension is a bit of a hybrid,with only partial indexation.I am convinced a guaranteed extra indexed £100 a week COPE looks better value.As someone said there are some rubbish private pension schemes out there,and it’s not going to get any better.Autumn statement on the state pension is going to be very interesting;given the country is now bust.

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Replying to Michael Davies:
Hallerud at Easter
By DJKL
29th Jul 2020 11:46

Don't worry, it was always bust, it is now just Buster.

(It gets worrying when FIAT500 is not a car but a reference to monetary policy)

Thanks (1)
Replying to Michael Davies:
RLI
By lionofludesch
29th Jul 2020 12:03

Michael Davies wrote:
.....given the country is now bust.

The country's not bust at all. We just have a high PSBR.

Long term debt isn't a problem to the UK. The second world war was paid for in 2006. Loans to cover compensation to slave owners took a little longer and were repaid in 2015. There are loads of gilts on the market dated after 2050. Folk were queueing up to buy government stocks in April. Huge issues oversubscribed.

Let me fill your half empty glass.

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Replying to lionofludesch:
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By memyself-eye
29th Jul 2020 14:58

Mine's half full - made £15k in the gold 'space' last week - a gain of 150%
Beats working for a living.

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Replying to memyself-eye:
Red Leader
By Red Leader
31st Jul 2020 20:29

What are you talking about?

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Replying to lionofludesch:
Red Leader
By Red Leader
30th Jul 2020 13:01

I suppose like any debt, what is significant is the effect on current cashflow. In the UK's case, higher taxes appear to be the consequence.

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By ashleyh
29th Jul 2020 12:11

Perhaps refer client to BBC Money Box's Paul Lewis's blog article at
http://paullewismoney.blogspot.com/2016/10/target-155-boost-your-new-sta...
which has been updated for 2020/2021?

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By dmmarler
29th Jul 2020 16:33

You say there should be 48 years of NI records for your client with still 2 years to go, and 39 are full contribution years, but HMRC/DWP says not so. Have you asked for the years which HMRC has full contributions and those which it does not? You can get hold of this to check their records against the clients'. It is probable at some point the NI number has been entered incorrectly (I have seen the final letter entered as an A when it was a B), probably by an employer, so the data about these contributions is still in a suspense account. If your client has been good, there will be a full set of P60s with all the data you need to reconcile the situation. In the distant past DWP records were manual, so there was room for error in both transcription and transfer to computer systems. Just one of those nice things you do to impress a client so all the friends get to know.

Thanks (0)
avatar
By dmmarler
29th Jul 2020 16:33

You say there should be 48 years of NI records for your client with still 2 years to go, and 39 are full contribution years, but HMRC/DWP says not so. Have you asked for the years which HMRC has full contributions and those which it does not? You can get hold of this to check their records against the clients'. It is probable at some point the NI number has been entered incorrectly (I have seen the final letter entered as an A when it was a B), probably by an employer, so the data about these contributions is still in a suspense account. If your client has been good, there will be a full set of P60s with all the data you need to reconcile the situation. In the distant past DWP records were manual, so there was room for error in both transcription and transfer to computer systems. Just one of those nice things you do to impress a client so all the friends get to know.

Thanks (0)
avatar
By dmmarler
29th Jul 2020 16:33

You say there should be 48 years of NI records for your client with still 2 years to go, and 39 are full contribution years, but HMRC/DWP says not so. Have you asked for the years which HMRC has full contributions and those which it does not? You can get hold of this to check their records against the clients'. It is probable at some point the NI number has been entered incorrectly (I have seen the final letter entered as an A when it was a B), probably by an employer, so the data about these contributions is still in a suspense account. If your client has been good, there will be a full set of P60s with all the data you need to reconcile the situation. In the distant past DWP records were manual, so there was room for error in both transcription and transfer to computer systems. Just one of those nice things you do to impress a client so all the friends get to know.

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By slowthinker
29th Jul 2020 16:57

I had cause to enquire about a similar situation in March last year, wondering why the full pension was not available. I received the following email reply from HMRC:

If you have less than 30 qualifying years of National Insurance contributions paying Voluntary Contributions Pre 2016 gaps tax years will improve the pension. Her Majesty's Revenue and Customs (HMRC) would be able to provide the exact payment required for each year you can address.

If a customer has between 30 and 34 qualifying years we would advise you to speak to our Voluntary Contributions experts prior to making any payments.

If a customer has 35 or more qualifying years then paying Voluntary Contributions for gap years before 06/04/2016 will not improve the pension. Only years going forward, if available, will increase the starting amount. For every extra qualifying year made from 2016/2017 tax year onwards will increase the customer's new State Pension by £4.70 (until you reach the full new State Pension amount or reach State Pension age - whichever is first).

In a telephone conversation, they told me that a "starting amount" was calculated up to 2016 as the higher of the old and new rules. If the old rules sum was higher, then it could not be increased. I believe both methods deduct for periods of contracting out. Years since then could be added by NI contributions with salary or by voluntary contributions.

In 2019 I didn't find this explained on the web, but maybe it is there somewhere now.

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Replying to slowthinker:
RLI
By lionofludesch
29th Jul 2020 17:08

slowthinker wrote:
For every extra qualifying year made from 2016/2017 tax year onwards will increase the customer's new State Pension by £4.70 (until you reach the full new State Pension amount or reach State Pension age - whichever is first).

So, based on that, you need to live about 3 and a bit years beyond retirement age to get your money back.

Of course, if you don't make it, I don't suppose you'll complain.

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