Reprieve for workers facing 50% hike in NI payments to fill pensions gap

Published on Saturday 4 April 2009 19:57

DELAYS caused by an overloaded Government pensions website will not leave people out of pocket, the Department of Work and Pensions said yesterday as they apologised for the problems.

People with broken work records were supposed to only have until tomorrow to buy extra National Insurance (NI) years before their price jumps by nearly 50%.

But unexpectedly high demand has played havoc on an online pension forecast service, leaving many unable to work out how much they would benefit from buying extra years.

Now the DWP has agreed with HM Revenue and Customs that those affected will be able to pay at the lower rate for a period.

"We are very sorry that some customers have been experiencing difficulties with our pension forecasting service over the past few days," a spokesman said.

"Due to unprecedented demand for our usually reliable service, some people have experienced delays in applying for a pension forecast. We are doing everything possible to prevent further problems from occurring.

"However, the Pension Service and HMRC have agreed that if a customer requests a pension forecast before April 6, but receives the forecast later, we will accept payment of Class 3 NICs at the pre April 6 2009 rates, if the payment is made within one calendar month of the customer receiving the forecast."

Consideration will also be given on a case-by-case basis for anyone who claims not to have been able to get through to request a forecast by tomorrow.

Buying extra NI years currently costs 8.10 for each extra week, meaning people pay the equivalent of 421.20 per extra year.

But with the start of the new tax year tomorrow, the price of the extra contributions soars to 12.05 a week or 626.60 a year.

Each extra year purchased will boost people's annual retirement income by around 160.

The increase in the price is to reflect the fact that people will need fewer years' worth of NI contributions in order to qualify for a full basic state pension, as the number of qualifying years required falls from 44 for men and 39 for women to 30 years for both sexes from April 2010.

It also aims to keep the purchase of extra years cost neutral for the Government, following moves to enable people to buy more years.

People can currently buy up to six extra NI years, however, there are time limits on when these years can be purchased.

But the Government announced last year that people with broken work records would be able to buy up to an extra six years' worth of NI years from April 6 for any period since 1975.

It is estimated that about 550,000 people are eligible to buy extra years under the new scheme, although just 20% are expected to take up the offer. Only a third of women reaching pension age currently qualify for a full basic state pension.

About 90% of people who could benefit from buying extra years are women, who are far more likely to have a broken contribution record as a result of taking time off to look after children or elderly relatives.

However, the option to buy extra years is only available to people who already have at least 20 years of NI contributions, meaning that many women could still miss out.

It also applies only to people who reach the state pension age between April 6 2008 and April 5 2015.