Deficiency
notice letters
Deficiency
notice letters are issued by HMRC's National Insurance (NI)
Contributions Office to employed persons whose earnings and
NI contributions have not been sufficient in a particular
tax year for that year to count as a 'qualifying year' i.e.
one that earns state benefit entitlement.
The letters invite payment of voluntary Class 3 contributions
to make up the shortfall. Class 3 contributions count only
for state pension and bereavement benefits entitlement, not
short term benefits such as incapacity benefit. Over four
million deficiency notices were issued for 2004/05.
There were two main issues with the letters. Firstly, some
were sent to individuals who had sufficient - even substantial
- earnings. Although the employer's P35 and P14s for 2004/05
were submitted on time, the forms had not been processed following
the problems with the introduction of employer efiling. Inevitably,
where this occurred, every employee of a business received
a letter in error. By now most affected employees should have
received a further letter confirming that the correct contributions
have been posted to their NI Account.
Secondly, for others where there is a genuine deficiency for
2004/05, or indeed any other year, there is now a dilemma.
Current rules require specified amounts of earnings or NI
credits in 90% of the years in a persons working life (broadly
for 44 years for a man and - for now - 39 years for a woman)
in order to get a full rate state pension. The issue is further
complicated as between 2010 and 2020 the state pension age
for women is being gradually increased to 65 so the number
of qualifying years a woman needs will gradually increase
to 44 years (90% of 49 years).
However, this may all change as the Pensions Bill, which is
making its way through parliament at the moment, proposes
that the current 90% requirement will be reduced to 30 years
for those reaching state retirement age from 2010. This therefore
presents a difficulty for many people thinking of paying voluntary
contributions. If payment is made now, then come 2010 under
the new rules it could easily prove to have been unnecessary.
No refunds would be given under such circumstances so rather
than pay now, affected individuals may prefer to wait a year
or so until the legislation is passed and matters become clearer.
This will result in any contributions then paid for 2004/05
being due at a slightly higher rate but this is perhaps better
than paying now in the knowledge that it may become a wasted
payment.
Please get in touch, if you or your employees, would like
to discuss your options.
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