New state pension entitlements

I believe there was a (possibly very short) period where people where being continued to be advised to make voluntary NIC contributions when these contributions would get you diddley squat. They should get these back.

Personally I would almost never make any VCs or AVCs to any pension scheme But then I am very cynical :-(

If you are working - and earning enough to pay NI contributions - you have no choice in the matter. The fact that you may have paid for longer than the new minimum requirement to get a full pension is just tough - you don't get any back!

This Moneybox thing only applies to people who have made additional

*voluntary* contributions in the (now mistaken) belief that this would increase their pension.

I would agree about voluntary NI contributions - these seldom give value for money. However, the same is not necessarily true of AVCs.

When I was working I built up a sizeable AVC pot with which I was able to buy an enhanced pension from my main occupational pension fund at a very favourable conversion rate compared with annuity rates at the time. But that was a few years ago, and my pension fund was particularly generous. I suspect that it's a lot more cautious in respect of people retiring now.

Let me make sure that I understand this. If I work until I am 65 then I make 46 years worth of contributions and I get a full pension. If somebody only makes 30 years worth of contributions then they also get a full pension. So what is all the rubbish about us not working for long enough all about?

Kevin

For the answer to your original enquiry see

I think it only applies to additional contributions after May 2006. The rubbish about working longer and saving more applies mainly to personal pension provision. What you'll find, if you want to save more, is that your every attempt will be penalised by taxation and means testing.

Meantime, to understand the relationship between you national insurance contribution record and your state pension:-

Imagine if you will, that you'd signed up with an insurance company to pay for a pension and had contributed for 45+ years. Then you claim the pension and the company says they've spent all your money, but they'll see what they can afford to pay you from what their newer customers are paying. Imagine that they then tell you that whatever money they collect they'll be splitting between you and people who aren't customers. Imagine also that they tell you that people who've chosen to only pay in for 30 years can't be expected to live on their lower pension, so they'll pay them the same as you. Same with the extra money you paid for the with-profits benefit; you've wasted that because people who haven't paid it will get an extra top-up

which will give them the same as you.

I hope that helps.

That is the state pension scheme today. If it was a private company it would be mis-selling by a company which was continuing to trade illegally having insufficient reserves to cover its liabilities

Toom

The main problem is that people are living too long so, in order to limit the average time for which people get their pension, the starting age has to be increased.

The reduction in the number of contribution years needed to qualify for a full pension is mainly aimed at giving women a fairer deal if they have a gap in employment while bringing up a family or nursing a sick relative.

If *everybody* contributed for only 30 years, the government would have an even worse financial problem!

You may find out on retirement when you recieve your basic state pension.

Also note that younger people will have to work longer under the new regime.

AFAIK the refund only applies to the VCs from when the rule change was announced and people were being wrongly advised as the govt. apparently didn't bother to change the advice. This is still confusing as I believe the rule change is not being finalised yet (so wait for some unpleasant suprises).

Those who spent too long in FT education also had a short-fall.

OTOH if you spent 40 years on the dole you would have a full NIC record.

The problem for the government is that the very people it wants to encourage to save to provide for themselves have the least incentive or ability to do so.

Rather ironic that this piece of well meaning legistlation means that scum bags who work cash in hand only need to make 30 years worth of contributions then get the full state pension.

Kevin

Not true - in some cases they are excellent value for money, eg if you're a year short of enough contributions for a full state pension and you aren't entitled to any means tested benefits such as pension credit, housing benefit etc.

It does seem to contradict all the stuff about having to work longer etc. The spin surrounding this reduction was that it'd mainly benefit women.

But they are *also* proposing credits for caring for a sick relative or a child under

12, so anyone doing that would get NI credits towards their state pension anyway.

Even so, you need to look at the size of the lump sum and the amount of extra pension it earns - and work out what the payback period will be. My impression is that you will have to draw your pension for many years before breaking even.

But are they proposing to make that *retrospective*?

Yes. IIRC HRP will be converted to credits.

I think it works out to about 20% pa. Try getting a 20% index linked annuity at

65!

The average 65 year-old man in the UK today can expect to live until he's 83 years old.

Based on today's figures, after 44 years of voluntary NI contributions you would have put a total of about £17,300 into the system. Upon retirement you start taking out of the system at a rate of £4,300 a year, so you get you money back by the time you reach age 69. You can tweak those figures a bit to take into account things like accumulated loss of interest on your contributions, but if you then live for a further 14 years it seems to be a fairly good deal.

Chris

The other alternative that was widely discussed at the time was linking the right to a pension to residence, I'm not sure what the problem with that was.

The govt wants to pretend that NI is an insurance, which you get something back for, not a tax.