UK Pension Reforms Could Mean Refunds Of Voluntary NI Contributions

by Jason Gorringe, Tax-News.com, London

18 January 2007

It was announced this week that UK taxpayers 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.

On 25 May last year, 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 received its Second Reading on Tuesday.

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.

Paymaster General, Dawn Primarolo explained that:

"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 added:

"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."

No refunds will be offered for any National Insurance contributions that were paid prior to 25 May 2006.

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