Your UK State Pension and Missing Contributions

Your UK State Pension and Missing Contributions
We think it's relevant to make sure that you're aware of an
important way some people can boost their income in
retirement.

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.

The Financial Tips Bottom Line:

Get your full information now, and make an informed choice.

You can find out what your state pension entitlement is by
completing form BR19, available from
http://www.thepensionservice.gov.uk/resourcecentre/br19/home
.asp

ACTION POINTS

- Take action by visiting the site above
- Print off
the BR19 form and post to The Pension service
- When
you receive your information, read and understand the costs
and benefits
- Talk it through with your financial
planner or adviser

----------------------------------------------------
Ray Prince is an Independent Financial Planner with
Rutherford Wilkinson plc, and helps UK Resident Doctors and
Dentists get the best deals on mortgages, protection and
investments, as well as helping them achieve their
financial objectives. Just visit
http://www.medicaldentalfs.com to get your free retirement
planning guide. Rutherford Wilkinson plc is authorised and
regulated by the Financial Services Authority.