People who paid voluntary Class 3 National Insurance Contributions (NICs) to make up for gaps in their records may be able to claim a refund if they made such payment after 25 May 2006.
Paymaster General, Dawn Primarolo, has confirmed that where individuals have continued to make voluntary 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.
HMRC are currently trying to figure out the precise administrative procedures for handling refunds in order to facilitate swift repayments to those affected.
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 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 held 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.
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 NICs 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
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.
Sarah Laing
Editor, TaxationWeb News
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