Will I be wasting money paying further National Insurance Contributions?

11 August 2016

Q

I am a pensioner with a final salary NHS pension, but I have gone back to work two days a week.

Since NHS pension contracting out has ended, I am for the first time ever paying full National Insurance Contributions (NICs) after working fro 42 years.

Will these new NICs increase state pension even though I have already paid reduced contributions for the maximum qualifying time?

From
LC/Salisbury

A

The first thing to do is get a state pension forecast (Gov.uk/check- state-pension). This will give you a forecast of what your state pension will be based on and an estimate of what your National Insurance (NI) record will be when you reach state pension age.

As you worked most of your career under the old two-tiered state pension system, there are transitional arrangements currently in place as a new single-tier state pension came into force in April 2016.

The forecast will show you your entitlement under the old system and the new, and you are entitled to the higher of the two amounts shown.

 

The full new state pension is currently £155.65 a week. However, because of the years you spent contracted out of the state second pension, a ‘contracted out deduction’ will be made from your starting amount under the old system, which reflects the fact that you paid lower NICs for many years.

If your predicted state pension is below the £155.65 then, if you continue working, you can build up entitlement to further state pension by working and paying NICs.

So even though you have worked for 42 years, the amount paid will count towards your state pension. Each full year of additional NI contributions will add £4.45 a week to your state pension.