.....And Out of the Strong
Came Forth Sweetness
By ROBERT O'CONNOR
Some years ago, the governing body of the United Kingdom commissioned a White Paper on pension reform. There were many, many recommendations put forward, many will never see the light of day. However, some of these recommendations have a very good chance of being passed into law.
One such recommendation proposes to significantly reduce the number of years of National Insurance contributions needed to qualify for the maximum UK State Pension. The White Paper is recommending the reduction of National Insurance contributions to 30 years for both men and women (currently 44 years for men and 39 years for women).
So what you say? Let's look at the fundamentals this radical change would make by way of a hypothetical story.
There was a man by the name of Samson; he was born in 1950. He worked in the UK for a little over two years and during this period paid the required National Insurance contributions. At age 20 Samson immigrated to Canada.
Now here is the good news for our man Samson (if parliament accepts the White Paper's recommendations on reducing the period to 30 years). Why might you ask is there good news?
Well, a number of years ago, there was a governmental bureaucratic bungling, National Insurance contribution notices that were required to be sent out by law were not! I suppose somebody pressed the wrong button on the computer keyboard (so wonderful when a government's error works in the tax payer's favour and not against).
So let's continue with the story of Samson. Samson had managed to stay single, when a few years ago the love of his life Delilah, a beautiful Canadian lass, entered his heart and life. After a few years of courtship they married. Samson is now 57 years of age and Delilah 54.
Although Delilah is a well-traveled lady, she has never visited the UK in her 54 years on this earth. She did tell Samson one day (upon his return from the barber) that she has Irish ancestry and that one day she would like for the two of them to visit the Emerald Isle and do some research on her heritage.
If Samson were to take advantage of the bureaucratic bungling, he would have the privilege of paying back 10 years of voluntary National Insurance contributions (back to the 1996 tax year), once he is up-to-date with his National Insurance contributions to Inland Revenue, he can then pay each year until his 65th birthday.
At age 65, Samson would have paid a grand total of 20 annual National Insurance contributions and he would be entitled (at today's maximum UK State Pension rate of £85 per week) to approximately two-thirds (66 percent) of the maximum state pension being paid at that time.
His wife Delilah, although she has never been to the UK , or paid one red penny into the British tax system, would be entitled to 60 percent of Samson's pension.
At today's Class "A" pension rates Samson's pension would be 66 percent of £85 per week, which would equal £57 per week.
Delilah would receive a Class "B" pension of 60 percent of Samson's pension, which would equal £34 per week. So combining their pensions, they would receive a total of £91 per week for the rest of their lives.
Converting that sum to Canadian dollars at $2.30 to the pound, and assuming they both live 20 years, we see annual combined pensions of nearly $11,000 per year, and in excess of $217,000 paid out over the 20 years.
So what should Samson do? The best recommendation is for him is to seek out a professional financial advisor who can walk him through the government's procedural labyrinth, or in the alternative, he could always go direct to the source i.e. Inland Revenue in the UK.
Oh, by the way did you get the riddle in the title? If you did well done, if not go to the Old Testaments book: Judges, Chapter 14 verse 14, and read the story, it's fascinating.
Robert O'Connor is a UK Expatriate and a specialist on Canada's CPP and UK State Benefits. He can be reached via e-mail: roconnor@telus.net or telephone: (604) 682-8087
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