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State pension /opted out

28 Jan 2020, 09:44

When we joined rm pension did we opt out of paying national insurance or just paid a reduced amount? If as I suspect the latter, does that mean those years in rm pension are still qualifying years for state pension?
Also if I take all my rm pension but continue working does my national insurance contributions then increase?

State pension /opted out

28 Jan 2020, 14:06

The state pension used to be split into 2 parts:

1. Basic state pension, which you accrued by working and earning a minimum amount of pay. That amount generally increased each year and is currently £118 per week. That's how much you need to earn to be accruing state pension!
2. State second pension(also known as state additional pension, SERPS, S2P), which accrued as a result of how much NIC's you paid. RM employees who were members of the defined benefit scheme up to April 2016 were 'contracted out' of this, and so did not build up any S2P, but still accrued basic state pension.
Both employees and RM paid a lower rate of NIC's, but the idea was that our RM pension would provide at least as much, if not more, than had we been contracted in.

When contracting out was scrapped in April 2016 both RMs and our NIC's increased and we started to build up more state pension from that date.

About 6 months beforehand RM introduced salary sacrifice(PSE) which is a way of reducing NIC's paid by both employee and employer. They did that to counteract the increase in NIC's as a result of contracting out ending.

There is some misconception that to qualify for the full rate of the state pension(currently £168 per week), you need 35 years of NIC's behind you. But that is not strictly true, as that 35 year rule only applies to those who started building up their state pension entitlement after April 2016.

Everyone else who has entitlement both before and after that date, will have a different amount of state pension entitlement based on their own individual work/National Insurance history, which will obviously vary from person to person.

If you've contracted out at some point in your working life, then you may well need more than 35 years. And if you've never contracted out, you may only need 30 years, which was the previous amount needed to get the maximum.

This gives more info: https://www.moneysavingexpert.com/savin ... -pensions/

Also get yourself a state pension forecast to see how much you're likely to get: https://www.gov.uk/check-state-pension

Pension income is not subject to NIC's.

*Members of RM's DC pension scheme have never been contracted out, but some DC schemes provided by other employers may have been.

State pension /opted out

28 Jan 2020, 22:07

If I can just add something here? RobertT is correct. However there is an important point to add: if like me you perform overtime, you will obviously increase your NI contributions overall. As a result, this will negate some at least, of the effect of opting out. Another point is this, if you are close to obtaining a full state pension by way of your NI history, then why pay too much? In October / November I checked my NI history and found that I only need 4 more years to qualify. I'm 53 in August. I do quite a bit of overtime, but I also pay nearly £119 per week in AVCs to build up my pension pot, but also reduce my NI contributions. Hopefully I will achieve full state pension somewhere around 57 / 58 years old and will have around £30,000+ in AVCs. You get nothing extra for additional NI contributions.

State pension /opted out

29 Jan 2020, 05:48

heapsy wrote:If I can just add something here? RobertT is correct. However there is an important point to add: if like me you perform overtime, you will obviously increase your NI contributions overall. As a result, this will negate some at least, of the effect of opting out.

If you were contracted out of the State Second Pension(S2P) before April 2016 you would have only been accruing Basic State Pension. The RMPP was contracted out, therefore you weren't building up any S2P, regardless of how much OT you did or how much NIC's you paid.
If you had of been contracted into S2P, then your OT may well mean a higher State Pension entitlement now.

Equally since contracting out ended, all you have to do to get 1 qualifying year is to earn 118 p/w which equates to £6,136 p/y. Any amount of OT won't increase your state pension any more, it just means you'll achieve the required level of earnings earlier.

1 qualifying year earns you 1/35th of the full rate of the state pension, which in money terms is currently about £4.80.

In practice, you could be a pro footballer on £200k p/w paying god hows how much in NIC's, and you'll still only be accruing the same state pension entitlement as someone on minimum wage.

Another point is this, if you are close to obtaining a full state pension by way of your NI history, then why pay too much? In October / November I checked my NI history and found that I only need 4 more years to qualify. I'm 53 in August. I do quite a bit of overtime, but I also pay nearly £119 per week in AVCs to build up my pension pot, but also reduce my NI contributions. Hopefully I will achieve full state pension somewhere around 57 / 58 years old and will have around £30,000+ in AVCs. You get nothing extra for additional NI contributions.

Everyone is going to be a bit different, but personally if the old system had stayed in place with the RMPP still contracted out, I would have only had a state pension worth about £129 p/w, and no way of increasing it.

With the new system, £129 was just my starting amount, and by paying the increased NIC's I'm accruing more pension, and I'm on track to get the full amount shortly before my 55th birthday at the latest. Which for me is another 3 years or so. Although as i only need to earn £6k that's likely to be closer to my 54th.

The problem of course is that I can't claim it until I'm 67, so I could potentially carry on working for another 12 years, paying NIC's and not really get any benefit.* Which is where my personal pension and AVC's come into their own and will enable me to retire early.

*Paying NIC's also affects your entitlement to other state benefits.

State pension /opted out

29 Jan 2020, 08:16

RobertT wrote:
heapsy wrote:If I can just add something here? RobertT is correct. However there is an important point to add: if like me you perform overtime, you will obviously increase your NI contributions overall. As a result, this will negate some at least, of the effect of opting out.

If you were contracted out of the State Second Pension(S2P) before April 2016 you would have only been accruing Basic State Pension. The RMPP was contracted out, therefore you weren't building up any S2P, regardless of how much OT you did or how much NIC's you paid.
If you had of been contracted into S2P, then your OT may well mean a higher State Pension entitlement now.

Equally since contracting out ended, all you have to do to get 1 qualifying year is to earn 118 p/w which equates to £6,136 p/y. Any amount of OT won't increase your state pension any more, it just means you'll achieve the required level of earnings earlier.

1 qualifying year earns you 1/35th of the full rate of the state pension, which in money terms is currently about £4.80.

In practice, you could be a pro footballer on £200k p/w paying god hows how much in NIC's, and you'll still only be accruing the same state pension entitlement as someone on minimum wage.

Another point is this, if you are close to obtaining a full state pension by way of your NI history, then why pay too much? In October / November I checked my NI history and found that I only need 4 more years to qualify. I'm 53 in August. I do quite a bit of overtime, but I also pay nearly £119 per week in AVCs to build up my pension pot, but also reduce my NI contributions. Hopefully I will achieve full state pension somewhere around 57 / 58 years old and will have around £30,000+ in AVCs. You get nothing extra for additional NI contributions.

Everyone is going to be a bit different, but personally if the old system had stayed in place with the RMPP still contracted out, I would have only had a state pension worth about £129 p/w, and no way of increasing it.

With the new system, £129 was just my starting amount, and by paying the increased NIC's I'm accruing more pension, and I'm on track to get the full amount shortly before my 55th birthday at the latest. Which for me is another 3 years or so. Although as i only need to earn £6k that's likely to be closer to my 54th.

The problem of course is that I can't claim it until I'm 67, so I could potentially carry on working for another 12 years, paying NIC's and not really get any benefit.* Which is where my personal pension and AVC's come into their own and will enable me to retire early.

*Paying NIC's also affects your entitlement to other state benefits.


My first point is regarding the issue of paying AVCs in general, including now! Many, including myself only started a few years back, 2015 in my case.

State pension /opted out

29 Jan 2020, 08:20

*Paying NIC's also affects your entitlement to other state benefits.

I've spoken to a neighbour who works in benefits regarding this. Complete rubbish if you receive more than £16,000 lump sum or your savings exceed that figure. lump sum will exempt you from receiving any additional benefits if it exceeds £16000 in most cases people wont qualify. I thought it would qualify you but it doesn't. Seems to be a con on the governments part to get you to carry on working. I also thought about working on after 60, maybe somewhere else. I'd have to drop below £118 per week to avoid paying NI (current figure). No point in paying it if you wont get any benefit from it.

State pension /opted out

29 Jan 2020, 10:07

Am I right in assuming that once you have earned the £6136 in a year and them leave you would still get that years worth of State Pension?

Also if the final year of NI only buys you about 50p a week additional pension. And you have left employment if you decided to buy that year do you still have buy a whole year or can you buy just the amount to top your pension to the full rate?

State pension /opted out

29 Jan 2020, 16:01

heapsy wrote:My first point is regarding the issue of paying AVCs in general, including now! Many, including myself only started a few years back, 2015 in my case.

There is no link to paying AVC's and the amount of state pension you're entitled to, unless it reduces your pay to below £118 per week.

heapsy wrote:*Paying NIC's also affects your entitlement to other state benefits.

I've spoken to a neighbour who works in benefits regarding this. Complete rubbish if you receive more than £16,000 lump sum or your savings exceed that figure. lump sum will exempt you from receiving any additional benefits if it exceeds £16000 in most cases people wont qualify. I thought it would qualify you but it doesn't. Seems to be a con on the governments part to get you to carry on working. I also thought about working on after 60, maybe somewhere else. I'd have to drop below £118 per week to avoid paying NI (current figure). No point in paying it if you wont get any benefit from it.

The £16k figure you quote is a valid point but there are plenty of people out there with no savings whatsoever.

There are also state benefits that require you to have paid a certain amount of NIC's in the previous 2 years to qualify, which was the point I was trying to make! https://www.entitledto.co.uk/help/contr ... d-benefits

The £118 p/w figure is what you need to earn for your pay to be assessed for National Insurance purposes, you don't actually pay NIC's until your income is above £166 p/w.

State pension /opted out

29 Jan 2020, 16:03

FAB wrote:Am I right in assuming that once you have earned the £6136 in a year and them leave you would still get that years worth of State Pension?

Yes, although that figure generally increases each year.

Also if the final year of NI only buys you about 50p a week additional pension. And you have left employment if you decided to buy that year do you still have buy a whole year or can you buy just the amount to top your pension to the full rate?

As far as I'm aware you can buy them in multiples of 1 week.

You might find this useful: https://www.which.co.uk/money/pensions- ... 0q09p37nsj

State pension /opted out

29 Jan 2020, 18:29

Thanks Robert! :thumbup

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