Financial Adviser Hertfordshire

Pensions

Many of our female clients will have had letters from Her Majesty's Revenue and Customs and the Department of Work and Pensions.

The letters have been sent out to inform those concerned that they may have missed National Insurance contributions in the past, meaning that their basic state pension entitlement would suffer.

The letter normally comes with fairly incomprehensible paperwork basically saying that you can remedy the situation by paying Class 3 NI Contributions if you wish.

If you've received a letter, I'm sure that you will have studied these various communications avidly, and made the appropriate decision for yourself...

What, you haven't?

Well, for those of you who have ignored these missives, or indeed for anyone who has not received any information, let's look at a recent case we came across.

June, aged 53, who works as a self employed writer (earning £500 pa), had built up a projected pension at age 62 of £3 per week. Her husband, a doctor, was ok, with projections of £86 per week which is pretty much the maximum.

June wanted to explore ways of increasing this. This involved paying Class 3 NI Contributions, which are voluntary, based on backtracking as well as for paying future contributions.

The figures looked like this:

By backtracking payments allowed to 1996/97, the approximate cost was £3,000. The benefit would be in todays terms £19 per week.

Paying voluntary contributions to age 60 (she gets credits from 60 to 62) would cost approximately £2,400. The benefit in todays terms would be around £40 per week.

So, for a total cost of circa £5,400, June would receive an extra pension at age 62 of £59 per week. For the mathematicians amongst you, this looks attractive.

Even if we make June a basic rate tax payer in retirement, this will give her (in today's terms) a pension of £2,393 per annum. So after 2.5 years she will be in profit.

A caveat here is that there are changes afoot with the basic state pension. In future, people will need fewer contribution years to qualify for the basic state pension. In June's case we would still advise her to carry on paying voluntary contributions since she currently has only 10 qualifying years. But for other clients, with say 25 qualifying years, it may well be that if the rule changes are ratified we would take a different view.