Can someone please help me understand how NI years work?

[williaa68]

Once upon a time I worked for a bank. I retired early and for the last few years I have been receiving my “deferred compensation” once a year in March - basically bonus amounts that were withheld for regulatory reasons. The payments are in cash and subject to paye and NIC. The amount has varied over the years but has always been a reasonable sum. The NI has varied too but has never been less than £2,000.

I have other income but no other employment income so I don’t pay any other NI. When I check my years for pension purposes it seems these last years done count - I understand that this may be because I haven’t paid NI on enough occasions rather than not paying enough NI per se. I am aware I can buy the years back but it seems incongruous that having paid lots of NI it doesn’t “count”.

I could draw a salary from my company but don’t. Should I? Any other thoughts, please?

Thanks I’m advance.

[Mr Pointy]

Have you gone online for a State Pension Forecast & if so, how many years are you going to be short of when it comes to calculating your expected SP? I believe that it's not worth purchasing any years before 2015/16 as they won't count towards your SP.

[MisterJD]

There is a minimum earnings limit for NI and from the figures you quote they might be below that. For 20-21 it’s £120 per week, no NI is paid but you qualify for the benefits.

[i4got]

I'm no expert so worth checking this yourself.

I also worked for a bank and had 3 years of deferred bonus paying out after I retired.

For income tax purposes it makes no difference if you receive one payment a year or 12 monthly payments or 52 weekly payments. The income tax is worked out on a percentage of the tax years earnings.

However it seems to be different with NI.

You have a weekly or monthly lower and upper limit. So no NI below £183 per week, then 12% NI between £183 and £962 then 2% on anything above that.

So the issue is that you could end up paying on a large one off payment, much more NI than someone else who received 12 monthly payments. But you have still only paid 4 weeks out of 52.

It's easy to find out from HMRC how many years NI are needed for a pension but it is not very easy to find out how many weeks NI are needed for a full years NI contribution. But I think it's safe to say that its more than 4 which is what I think they will count if you receive only a single annual payment "bonus" during a company's regular monthly payroll run.

As I say I'm no expert but this is how I understood it to work and I have ended up paying class 3 contributions to ensure I have the full years contribution.

Edited by i4got on Saturday 3rd April 18:12

[highpeakrider]

I think it maybe the early years that counts, I sorted a mates pension, he had not paid NI for the last 20 years and seemed to have about 25 years payments, in the end he was about £15 pounds a week down on his pension

[Mr Pointy]

There's article here which confirms it's a complicated subject:
https://www.thisismoney.co.uk/money/pensions/artic...
https://www.thisismoney.co.uk/money/pensions/artic...
https://www.thisismoney.co.uk/money/experts/articl...

Daily Mail link, but the writer used to be the Pensions Minister.

[williaa68]

Thanks everyone. I will try and call the future pension helpline tomorrow and see what they say. It is odd - looking at my forecast, one year I paid over £10k of NI but they are telling me I need to make a voluntary contribution of £644 for the year to count....

[chip*]

I had a similar situation when I checked up my NI contribution knowing I earned enough to receive NI credit. I was contracting at the time, and I paid myself £8k salary as recommended by my Accountant. To cut a long story short, my Accountant screwed up my payroll (*) submission to HMRC, hence the NI credit did not register. I sent a copy of my P60 to HMRC but that wasn't adequate, so my Accountant eventually submitted an EYU ( Earlier Year Update) direct to HMRC which resolved the missing NI credit to my account.

Edit to add:
(*) I always had my entire annual salary paid on the 12th month / March each year, and this was reported in my March RTI payroll submission (similar to your one-off bonus payment). Somehow, the payroll team messed up my March RTI submission for one year, hence needing an EYU to resolve. I suggest you dig out copy of your P60's which will confirm your income, and then check up with your Ex-employer the exact details of their payroll submisson to HMRC (if any?).

Edited by chip* on Monday 5th April 11:54

Edited by chip* on Monday 5th April 12:03