Monday, 7 April 2014

Unused National Insurance Contributions: a definitive answer

I've now had a reply to my second letter to the Pension Service about what what happens to unused National Insurance Contributions - see What's happened to my eight years? on 10 March. I had put the matter to them thus:


Mrs A Dixon
FFC Specialist Team
International, Future & Specialist Pension Centre
The Pension Service 9
Mail Handling Site A
Wolverhampton
WV98 1LU

My National Insurance Number: XX XX XX XX X

Dear Mrs Dixon

National  Insurance Contributions not needed for a full State Pension - what happens to them?

Thank you for your letter of 5 March, in response to mine of 15 February. Yes, I do see that you are not able to comment on pension changes that are only proposed and not yet law.

Staying therefore with current legislation, could you please still give me a clear answer on my particular case, where, as you say, I am entitled to a full State Pension from 6 November 2014 based on 30 qualifying years, but have in fact already built up 38 years. What is done with the 8 years not needed for the full State Pension? 

I am not married, nor in a relationship, nor plan to be, and have no dependants. No bereavement benefits will be required. Nor do I think those 8 years are needed for any other kind of benefit that I could possibly now qualify for. So far as I can see, the 8 years are surplus. So: under present law, am I entitled to claim a refund of their current value? Or am I in some way ‘in credit’ for a certain amount that might at some future point let me buy additional benefits, if the law changes?

I think this is worth enquiring about. I see from my P60s that in the eight final full years of employment up to 2004/05 I paid over £17,000 in Employee Contributions. I don’t know what this would be currently worth, but clearly not a small amount. Surely you don’t simply retain it. 

If your answer is that I cannot claim a refund, and there is no credit balance on hand, then please at least specify which statutory provision denies this to me. I can then take the matter up with a pension lobby group, or an MP who champions pension issues.

Yours sincerely

Miss Lucy Melford


And this is what was waiting for me when I returned from my holiday, in a letter dated 18 March:


Dear Miss Melford

About your correspondence

Thank you for your letter dated 11 March 2014.

National insurance (NI) contributions

Class 1 NI contributions must be paid up until you are State Pension age if you work for an employer and earn more than the employee's primary threshold.

NI contributions not only go towards your State pension, they also give you entitlement to certain benefits along with the National Health Service.

The State Pension is a 'pay as you go' scheme, so that today's contributors and taxpayers are paying for today's pensions and other benefits and those who paid contributions in the past were paying for the benefits and pensions of that time. In other words, individuals do not accumulate an entitlement to a pension fund, based on actual monies they have paid. Instead, the payment of contributions entitles people to the range of benefits which are available based upon the rules applicable at the time of the claim or when there is a relevant change of circumstances.

You would not be entitled to a refund of the 8 years of NI contributions paid.

Where to get more information

If you require more information about this letter you can contact our call centre on the above telephone number.

Yours sincerely

Mrs L Noble


Well, she didn't actually quote the underlying statutory provisions for possible further research, but I think this answer is clear enough, mainly because I now see that I was under a misapprehension. I thought I had a 'personal contributions account' with a definite built-up value to it - a personal benefits pot, if you like - but all I really had was a current entitlement based on rules that change all the time. Now that I understand that, I shan't take this further.

I had long suspected that NI Contributions weren't directly connected to anything actuarial - that is, related to life expectancy - but were simply general taxation under another name, albeit to create a fund that was going to be spent nationally on health and benefits for the entire population. The £17,000 or so that I personally paid in NI Contributions, but isn't needed for my State Pension, is therefore lost and gone. Unless, that is, I somehow fall on evil times and find myself having to apply for a welfare benefit of some kind - which, given the future level of my Civil Service Pension and the State Pension combined, is unlikely.

And yet I'm glad to have an answer like this: it's good to know how you stand, even if there's a sense that you've been diddled out of something.

So what now? The government has just published its proposals for purchasing extra State Pension in the six months from October 2015 with special Class 3A Contributions. This affects people like me, who start to receive their State Pension, under old rules, before the much better new replacement scheme begins. The detail (so far as yet decided) is at https://www.gov.uk/government/publications/additional-state-pension-top-up. It reveals that I would have to stump up £934 for every extra £1 per week of extra pension. So if I really had £17,000 by way of credit to set against the cost, I could get myself £17,000 divided by £934 = £18 per week more State Pension. That's £72 more every four weeks. Hmmm, that would be useful!

It's a pity that I haven't got an existing credit of £17,000 to throw at this. I certainly haven't got the real cash, and there's no way I can save enough cash up before October 2015. For me, as with many others no doubt, this is out of reach.

Sigh.

8 comments:

  1. .....and you could drop dead tomorrow and not receive any of the accumulated benefits or you may live until you are 100 and get the most out of it. I saw receiving a pension earlier as a gratuity the extra years subscriptions are really barely enough to cover your welfare should you live many years after retirement. Paying for an enhanced pension is a silly idea unless it is done forty years before you retired. You could just as well invest the cash elsewhere and reap a higher return.

    Shirley anne x

    ReplyDelete
  2. Shirley Anne's point is a good one. Just supposing you did have £17k to spare, if you invested it at (say) 4% you'd get £680 per year, which is £13 per week. Less than the £18 the government is offering but, most importantly, the £17k would still be yours to spend if ever you changed your mind. Give it to the government and it's gone forever.

    ReplyDelete
  3. Lucy, I always thought that you were a generous soul but giving away £17,000 for the government to waste, wow.

    ReplyDelete
  4. I had no choice about giving that £17,000 away - and lo, it went straight into the government's grubby hand between 1996 and 2005, to be spent by them on the Iraq War and other skirmishes. I dare say it bought a few bullets. It isn't now available to bolster Miss Melford's late-life dignity. I shall be forced to go on the game to make ends meet, don't you know.

    Lucy

    ReplyDelete
    Replies
    1. What? You mean you're not already? LOL

      Shirley Anne x

      Delete
  5. No, I am so inexperienced. But I learn fast.

    Lucy

    ReplyDelete
  6. Another Lucy once informed me that it was possible to "earn" quite a decent sum by being authoritative and stern to certain male clients without any personal intimacy involved. It was clearly a mistake to part with that whip so soon...

    One good "client" who for your services "claimed" to be "renting" a room in your home could give you a tidy tax free sum...

    Perhaps you could spend some of the early swag getting a new registration plate for advertising, deductible i'm sure, FET 15 H should do the trick...

    ReplyDelete
    Replies
    1. Or like the lady across the road from me who has MR5 6LAM........She ain't all that pretty though!

      Shirley Anne x

      Delete

You must be registered with a proper blogging platform if you wish to make a comment. I have had to deny access to completely anonymous commentators.

This blog is public, and I expect comments from many sources and points of view. They will be welcome if sincere, well-expressed and add something worthwhile to the post. If not, they face removal.

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Lucy Melford