Voluntary pension payments ?may be a waste of time and money?
250,000 people who make voluntary National Insurance contributions each year will not benefit from the extra payments, the government has warned. The advice, from HM Revenue and Customs, follows proposals for pensions reform announced in May.
About a quarter of a million people pay extra to fill gaps in their National Insurance records in order to boost their entitlement to the state pension and other social security benefits. The voluntary contributions - also known as class 3 contributions - are paid at a rate of £7.55 a week. However, if planned changes go ahead, up to £90m of top-up payments this year could prove to have been a waste of money as the government plans to reduce the number of qualifying contribution years needed to obtain a full basic state pension to 30 years for both men and women. At present, women need between 39 years and 44 qualifying contribution years (depending on their date of birth) and men 44 years.
Those reaching state pension age on or after 6 April 2010 may already have paid enough contributions to qualify for a full basic state pension, making further top-up payments unecessary. Those who decide to pay the top-ups might not be able to get a refund if it turns out they need not have. However, those who delay paying may end up making contributions at a higher rate if it later turns out that extra payments were needed.
Malcolm McLean, the chief executive of the Pensions Advisory Service said: “People reaching state pension age after April 2010 need to establish from the state pension forecasting service what gaps there are in their record and what their options are for paying voluntary contributions to fill those gaps. “But National Insurance contributions are not just for state pensions. Any decision on voluntary contributions could also impact on entitlement to benefits such as incapacity benefit. If in doubt seek advice.”
This was posted in Bdaily's Members' News section by Ruth Mitchell .
Enjoy the read? Get Bdaily delivered.
Sign up to receive our popular morning National email for free.