16 January 2007 - Refunds of Voluntary National Insurance Contributions
People who have made voluntary National Insurance (NI) contributions to make up for gaps in their records may be able to claim a refund if they made the contributions since 25 May 2006, Paymaster General Dawn Primarolo and Pensions Reform Minister James Purnell announced today.
Paymaster General Dawn Primarolo said:
" The state pension reforms will make the system fairer to all. The Government also wants to ensure that it is fair to people who have paid voluntary National Insurance contributions. That is why I am announcing that where individuals have continued to make voluntary National Insurance contributions since 25 May 2006, but would have chosen not to do so had they been aware of the Government's intention to reduce the number of qualifying years required for a full basic State Pension to 30, they may be entitled to a refund.
Officials at HM Revenue & Customs (HMRC) will be working up, in discussion with stakeholders, the precise administrative procedures for handling refunds in order to facilitate swift repayments to those affected.”
Pensions Reform Minister James Purnell said:
"Whilst the Government’s pension reforms will eliminate the existing inequalities in the state pension system by reducing the number of years needed to build up a full Basic State Pension - and by recognising people’ s social contributions - we appreciate concerns about the continuing payment of voluntary NI contributions.
" By 2010 around three quarters of women will be entitled to a full Basic State Pension, compared to only 30 per cent now. This will rise to over 90 per cent of women by 2025.
" It is important that we make these changes so that the system is better in the future - in particular for women and carers."
Notes for editors
On 25 May 2006 the Government published its White Paper, Security in retirement: towards a new pensions system. One of the proposals in this White Paper was to reduce the number of qualifying years needed to receive a full basic State Pension to 30 for those reaching State Pension age on or after 6 April 2010. The number of qualifying years currently required is 44 years for a man and 39 years for a woman. This proposal is now being legislated for in the Pensions Bill which is due to receive its Second Reading on Tuesday 16 January.
As a result of these reforms around 75% of women reaching State Pension age in 2010 will get a full basic State Pension, instead of around a half without reform. By 2020, at least 90% of women and men will reach State Pension age with a full basic State Pension.
Individuals usually become aware that they may find it advantageous to make voluntary National Insurance contributions when HMRC sends them a letter (known as a Deficiency Notice) to tell them they do not have sufficient contributions paid or credited to qualify for state benefits for a specific year. Customers are given the opportunity to challenge the information we hold and are invited to consider the payment of voluntary contributions. This year customers were also sent information on possible changes to pensions entitlement arising as a result of the proposals for pensions reform. This process is a customer service initiative and safeguards the integrity of the NI account, and helps to ensure that employers have met their obligations. More importantly, it enables individuals to make important choices about their future pension provision.
A person may now want to claim a refund of voluntary contributions they have made since 25 May 2006 if, for example, they retire after 6 April 2010 and would have had at least 30 qualifying years in their contribution histories even if they had never made any voluntary contributions. If the proposed change to the number of required qualifying years is enacted then these individuals would be entitled to a full basic State Pension without the extra qualifying years earned as a result of the voluntary contributions made.
No refunds will be offered for any National Insurance contributions that were paid prior to 25 May 2006. These contributions were paid properly at the time in accordance with the law and in line with Government policy. 25 May 2006 was the date on which the Government set out its intention to reduce the number of qualifying years needed to receive a full basic State Pension to 30 for those reaching State Pension age on or after 6 April 2010. It was only from this date onwards that settled Government policy could affect individuals’ decisions to pay voluntary National Insurance contributions.
In practice some people may choose not to claim a refund as it means they will be foregoing the accruals of entitlement to bereavement benefits that those contributions would have provided.
In 2003/04, for Great Britain, around 263,000 people voluntarily made Class 3 National Insurance contributions.
HMRC has taken steps to alert contributors to the potential impact of the proposed changes and advised individuals to obtain a pension forecast before paying any voluntary contributions, if they are due to reach State Pension age on or after 6 April 2010. Information about the changes has also been placed on the HMRC website.
Issued by HM Revenue & Customs Press Office
Press enquiries only please contact:
Claudine Lashley
Tel: 020 7147 2319
E-mail: claudine.lashley@hmrc.gsi.gov.uk
Out of hours
Tel: 07860 359544
Website: www.hmrc.gov.uk
DWP Press Office
Press enquiries only please contact:
Ben Lloyd
Tel: 020 3267 5136
E-mail: ben.lloyd@dwp.gsi.gov.uk
Out of hours: 07659 108 883
Website: www.dwp.gov.uk