National Insurance on Pension and commutation

#1
Sorry if this is in the wrong forum but it is a request to the old and bold.

Firstly, I know you pay tax but do you pay National Insurance contributions on your army pension?

Also, my mate finishes his 22 in October and his brother has convinced him that he shouldn't commute because he will be better off if he doesn't. I've always been told that you are better off commuting but don't know why other than your spouse gets to keep the lump sum if you die. Can anybody tell me why because I will be doing this next year.
 
#2
No, you don't pay National Insurance on your pension. NI only applies to "earned income". There are different rates depending on whether you are employed or self-employed and you don't have to pay it at all from state pension age.

Get advice specific to your circumstances on commutation. I didn't commute and don't regret it. Be careful about any responses you get here!!
 
#3
you dont pay national insurance contributions on your army pension.
to commute or not to commute! all evens out in the end, if you were to take a bigger tax free lump sum and a smaller monthly pension and then add up all the taxed monthly amounts until youre 55 and then add the difference between the smaller lump sum you would have had and the larger lump sum that you took, it will more or less add up to the same as taking the smaller lump sum and the larger monthly payments that are taxed over the same period. you dont beat the tax man by taking a larger lump sum, the lump sum just looks nicer in your bank! all depends on if you want or need the cash now.

I commuted the full amount that I could because I wanted the cash in the bank for when I needed it, 4 years later and I havent spent it yet but its there in case I want it. just remember that your monthly pension will take up your full tax free allowance and that you will be taxed on every penny that you earn in your new job.
 
#4
Thanks for your replies - that's good news and makes me about £70 a month better off.

I will get advice on commutation as I will be just short of 29 years served and nearly 47 when I get made redundant next year so not a normal retirement age.
 
#5
You are exempt National Insurance at age 65, if you continue working you will not pay any N.I..
 
#6
Get in touch with a reputable accredited financial adviser.

Each person's individual financial circumstances are different. If you have debts/mortgage to pay off, a lump sum may be the way to go. If not, at present cash in the bank is losing money with regard to the inflation/interest ratio. A regular higher pension income may be the better bet.

Also, get a crystal ball. If you plan to die five years down the line, go for a lump sum and piss it up the wall.
 
#9
Regarding the previous answers on lump sums and income. I opted for full pension simply because I wanted a guarenteed income and could plan accordingly. The Memsahib had to buy an annuity from her job and that's a different ball game. In her case we opted for maximum in cash - up to 25% of her pot, then the rest for her only on a fixed rate, no increase for inflation, because if I pop my clogs she gets half anyway and will be OK. On the other hand, we didn't have minkies to worry about and have paid our mortgage so could afford not to have the lump sum. As stated above, do what fits YOUR personal circumstances. Also for those under 65 who are lucky not to need to sign on and are financially stable, DO NOT pay any more NI than 30 years as that's all you need for your State pension, which they take a lump from your other pension at 65 to pay for anyway!
 
#10
I am in discusions at the moment with the DWP over my NI contributions.

I am ex army and ex HMP with over 30 years NI contributions.

I am receiving a Civil Service ill health pension (army time plus HMP service). (I am not receiving any benefits or other income).

I have been advised I do not need to pay any more NI contributions for a old age pension at 66 ish.

Please can any Pay Bods etc confirm if this info is correct as I do not wish to be stung at a later date.
 

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#11
The only thing muddying the waters a bit and stopping me giving a definitive answer is your Civil Service pension but, as far as I'm aware, NI conts stop only at reaching State Pension age, no matter how many years you've paid for.
 
#12
I am in discusions at the moment with the DWP over my NI contributions.

I am ex army and ex HMP with over 30 years NI contributions.

I am receiving a Civil Service ill health pension (army time plus HMP service). (I am not receiving any benefits or other income).

I have been advised I do not need to pay any more NI contributions for a old age pension at 66 ish.

Please can any Pay Bods etc confirm if this info is correct as I do not wish to be stung at a later date.
You only pay NI contributions when you are employed and under retirement age (variable, as you know). The level of NI contributions that you make when you are working is complex and I have never bothered trying to work them out (contracted in, contracted out, self-employed and other, IIRC). The DWP are the experts... So, if you are drawing a pension of sorts, and are not working, you don't pay NI contributions.

You need 30 years of NI contributions to draw the full Old Age Pension. If you have fewer than 30 years of contributions for any reason, you can top up under certain circumstances. It is usually women who have an incomplete record and, if you are a Service spouse who has lived abroad, you should certainly check that your record is up to date.

Anyone can check their NI contribution record by visiting the DWP website and asking for a Pension Forecast, which is what you might be trying to do. I recommend that everyone does this in their early to mid-50s so that they have time to sort out any problems!

Litotes
 
#13
I have had the pension forecast from DWP confirming that I have over 30 years NI contribution 1976 to 2011.

I am taxed on my Civil Service Pension in the same way as ex HM Forces are taxed on the 22 year pension. (Lump sum tax free, pay tax on monthly pension payments, PAYE type deduction).

Dispite asking for a formal written statement stating 'I am not required to pay any more NI contributions', all I am receiving is the printed pension forecasts.

I was told I may have to pay class 3 NI contributions up to 66 by a self employed bod.

Also I was advised to become 'self employed (in name only)' and pay class 2 NI contributions instead.

(Not entitle to any benefits nor do I wish to be).

Job Centre Plus not very helpful.
 
#14
I have had the pension forecast from DWP confirming that I have over 30 years NI contribution 1976 to 2011.

I am taxed on my Civil Service Pension in the same way as ex HM Forces are taxed on the 22 year pension. (Lump sum tax free, pay tax on monthly pension payments, PAYE type deduction).

Dispite asking for a formal written statement stating 'I am not required to pay any more NI contributions', all I am receiving is the printed pension forecasts.

I was told I may have to pay class 3 NI contributions up to 66 by a self employed bod.

Also I was advised to become 'self employed (in name only)' and pay class 2 NI contributions instead.

(Not entitle to any benefits nor do I wish to be).

Job Centre Plus not very helpful.
How old are you, if you dont mind me asking?
 
#16
As an aside, If you're a former NI contributor but now live abroad in an EU country and make/have made contributions to that country's Social Insurance scheme, you are eligible to receive TWO pensions, one from the UK and one from your country of residence.

The rate of pension received usually depends on the number of contributions made in each case.

Take a shufti here HM Revenue & Customs: National Insurance contributions advice for those abroad and work from there.

I know it sounds crazy but you really can receive two full state pensions, one from each country.

Of course your mileage may vary!

GMOB
 
#17
A youngish 52.

Joined up in Sept 76 (JLR), (previously worked prior to enlisting stright from school), (paid taxes/NI contributions from day 1 after leaving school).

Recently early retired, (Civil Service Medical Pension).
I packed up just before my 54th birthday and am living off savings until my pension kicks in next year, which as stated previously, I have opted for the max and no lump sum. As you are in receipt of a pension you DO not need to pay NI unless

a) You intend to sign on and collect JSA which is contribution based or claim Sickness benefit.
b) You have LESS than 30 years NI conts after 31/3/2011.

If you are still working NI will be deducted until you retire, regardless as the retirement age keeps rising until you reach the appropriate State retiring age. As you are not working and have 30 years in, you do NOT need to pay NI unless for the 2 reasons above. You are not likely to claim sickness benefit or unemployment benefit so NI conts are redundant in your case. If you need a personal forecast on your particular State pension, get onto DWP website and give your NI number etc and they will send you one. If you have a shortfall then pay for the missing period, otherwise don't bother as you will get nothing further out of it as any State pension increases will count against your other pension anyway.
 
#18
As I am just arriving at the age 65, I have been looking into this for myself. There are a number of factors, but in regards to NI, it does not matter if you have 30 years paid, you will continue to pay if you are employed, it is only the self employed that get the chance to pay the lower class of contribution. One thing to note, the 30 years starts at age 19, not when you started paying it if prior to that age. At age 65, you ask for a letter from DWP (if you are going to continue working) and submit to your company, who will then stop paying NI contributions for you from your 65th Birthday.
Sate Pensions are something else, as you can defer it and take either a raised pension afterwards, or a lump sum if you defer for a minimum of 12 months, the lump sum is greater than the 13 monthly payments as interest is involved, or you can take a greater pension of an additional 10% for each year of deferral. So the chrystal ball is needed once again to work out which is best for you. Take note, if you are taxed at the higher rate, you will be taxed at the higher rate on your OAP end of.
 
#19
Take note, if you are taxed at the higher rate, you will be taxed at the higher rate on your OAP end of.
Please clarify what you mean by that?

Your income as a pensioner may be less than the higher rate threshold. If you retire half way through the tax year, you may be paying a higher rate, but from the start of the next tax year if you are below the higher rate threshold then surely you will no longer have to pay the higher rate.
 
#20
I attended a Job Fair in Milton Keynes at the weekend and spoke directly to the Job Centre Plus Staff. They confirmed I do not need to pay any NI contributions due to only being being in reciept of a pension.

Confirmed 30 years NI contributions already paid.
 

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