Quick question here - is a state pension reduced by the amount of your savings, or by any money obtained through an occupational pension?
I ask because I've just had a letter from the NI office that my contributions aren't up to date. I very much suspect that it's not worth the money trying to get them up to date, particularly given the proposed changes to the pension system.
They are proposing a full state pension with 30 qualifying years from 2010, so if you've already got 30 years or are likely to have and you reach state pension age after 2010 it's probably not worth making voluntary conts.
No, but you progressively lose your age-related tax allowance if your total income is over a certain amount so, if you are in the relevant band, you don't see much of any pension increase you may get.
You need to do the sums very carefully to see how much extra pension you would get relative to your outlay. Making voluntary contributions to enhance your state pension is rarely cost effective.
Thanks for the responses. Of course, now I'm wondering what the chances are of the proposed legislation getting through.
I will (just about) have 30 years of NI contributions assuming I retire at 65. If the legislation doesn't go through, then there's no way I'll get close to 39 years before retiring, so it probably isn't worth making any voluntary contributions.
Cheers all
Haven't NI been sending out lots of such letters incorrectly as a result of a progran fault?
(IOW try and check what they are telling ouy.)
Thanks, I heard that too. Sadly, in my case they are correct and the letter referred specifically to a tax year in which I hadn't worked a full year so hadn't made enough NI contributions.
The basic state pension isn't affected by any of your savings or other income and everyone who has contributed fully is entitled to it. And it's certainly worth ensuring you have paid the necessary NI contribs to get the full amount. Otherwise your pension will be reduced by a factor relating to the number of missed years contributions.
However, as others have pointed out, you will probably only need 30 full years of contributions to be eligible for the full amount by 2010. There's little doubt that the legislation will go ahead, but it may be tweaked along the way. If I was you I would make sure you've got 30 full years paid, then wait for 2010 to arrive and review the situation. You will always be able to make some further contributions after that date if the position has changed.
-Neil F.
neil f writes
I get the full State Pension plus SERPS, a very useful supplement. One point is that the State Pension is not taxed directly, but the resulting tax on my modest company pension makes a considerable dent in it. Could be worse, I could be getting insufficient pension to pay tax . . .
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