Buying NI years, a worked example

[JohnB]

I've finally tried to work out whether to buy extra years of NI, using advice from viewtopic.php?f=17&t=13738 and the very useful http://web.archive.org/web/201701120049 ... 01655.aspx

I thought writing my though processes down would clarify things, and perhaps help others. I can supply a spreadsheet.

I thought I was contracted out for all years, with a civil service pension, and private pensions that were either SIPPs or money purchase schemes. I don't plan to work again. The website and I agree I had 29 NI years, and could expect 140.91 now, with COPE=34.08. £164.35 if I worked 17 more years (ha!)

I rang the helpline, and after a long wait, I was bombarded with numbers, key ones being ASP of 17.65, and years before 2016 buy me 4.20 p/w, afterwards 4.70 p/w

I had 28 NI years before 2016, 1 year for 2017, I could buy a half year ending 2007, 2 full year ending 2008 and 2009, and full years ending 2018 onwards. I have GRB=0, RDA=0. At the end of 2016 BSP was 119.30, SSP was 155.65

Old Scheme
At end of 2016 I had 28/30*119.30+17.65-34.08=129.00 p/w
The 2017 year gives an extra 4.70 p/w, so total of 133.69, uprating with inflation gives 140.91, which is what the website forecast tells me
Buying 2007 costs 357, and gains 4.20 p/w, 218 p/a, ratio 1.63, no brainer
Buying 2008 costs 689, and gains 4.20 p/w, 218 p/a, ratio 3.15
No point buying 2009, as I'd already have 30 old scheme years.
Buying 2018 costs 741, and gains 4.70 p/w, 244 p/a, ratio 3.03
Buying 2019 costs 762, and gains 4.70 p/w, 244 p/a, ratio 3.11
Buying 2020 costs 780, and gains 4.70 p/w, 244 p/a, ratio 3.19, so getting worse
Buying 2021 costs 780, and gains 4.70 p/w, 244 p/a, ratio 3.19
(buying 2008/9 will cost 780 pro rata from April onwards)
And that gets me to £167.20 and 35 years, which is far as I can go

New Scheme
At end of 2016 I had 28/35*119.30-34.08=90.44
The 2017 year gives an extra 4.70, so total of 95.14, uprating with inflation gives 99.34, which the helpline told me
I can't buy pre 2016 years, and would have to buy vast numbers of new years to get anything like the old scheme figures

So it seems to me that I'm firmly in the old scheme logic, and should buy 2007, 2008, 2018, 2019 now, and 2020 and 2021 when I can.

Questions

How do I find how where that 17 ASP and 34 COPE numbers came from? I was given a helpline number for some NI department, would they be able to pin them down?

Can I pay the 2018/19 NI now, or do I have to wait until next year

While the helpdesk lady was very helpful in quoting numbers off her screen, she couldn't send me a printout. Am I likely to got any wrong, especially the value of extra years, £4.20 under old rules, £4.70 under new.

Oooof

[Chrysalis]

That’s interesting even though I don’t fully understand it.
I had no idea you could retrospectively improve your pre 2016 starting amount under the old scheme rules. I kind of thought the only way to enhance the pension was by buying post 2016 years. But I guess it makes sense (though far too complex for most joe publics to have any idea about).
But why 17 additional years to make up the pension from 140 to 164?
Confused

I am in a similar situation as far as having a reduced starting amount due to contracting out, but I don’t have any gaps to make up (I don’t think) and I am still paying NI through work. Similar age to you. Maybe time to review again.

[Lootman]

That’s interesting even though I don’t fully understand it. I had no idea you could retrospectively improve your pre 2016 starting amount under the old scheme rules. I kind of thought the only way to enhance the pension was by buying post 2016 years.

Yes, I thought the same thing. Since the OP already has 28/30 qualifying years under the old scheme rules, then I'd assume there is no benefit to buying more than 2 more years.

[mc2fool]

And that gets me to £167.20 and 35 years, which is far as I can go
:
So it seems to me that I'm firmly in the old scheme logic, and should buy 2007, 2008, 2018, 2019 now, and 2020 and 2021 when I can.

Ok, first of all, you can absolutely buy missing pre-2016 years to potentially improve your state pension, and while it may not do so for everybody in your case it will.

Now, there are a number of issues with your analysis, although your conclusion is almost correct with only one matter affecting your bottom line, so I'll just address that here. (Maybe I'll return to the others in a day or two or three when I have the time to do so, no promises )

Your assumption that 35 years is as far as you can go isn't correct. If your 2016 "starting amount" (irrespective of how it is arrived at) is less than the full new state pension amount then you can keep on adding extra years until you reach the full new state pension amount or you reach state pension age, whichever comes first, and irrespective of the number of years involved.

The current full new state pension amount is £164.35, which will be your limit. If you buy tax years ending 2007, 2008, 2018, 2019 and 2020 that will take you up to £163.41 (if my quick math while also trying to watch the TV is right), meaning that if you then also buy 2021 it will only benefit you by the final £0.94 p/w to the full new state pension amount.

How do I find how where that 17 ASP and 34 COPE numbers came from? I was given a helpline number for some NI department, would they be able to pin them down?

ASP is horrendous to pin down as it depends on a plethora of factors across the decades. However the NI department of HMRC should be able to give you the data, but you'll probably have to look in legislation and/or the House of Commons library to figure out how the number is arrived at. You might start with the COD document referred to in my archived post you referenced. As you have no RDA then your COPE = your COD which is the flip side of your GMP the figure for which you can get from your civil service pension administrator.

Can I pay the 2018/19 NI now, or do I have to wait until next year

Or wait until early 2021. Voluntary NIC costs are frozen for two years after the end of the tax year they're for, so as long as you buy 2018/19's before 5-Apr-2021 you might as well keep the money in your bank account and gain some interest. (Pre-2016 NICs are, exceptionally, frozen in price until this coming 5-Apr).

[JohnB]

Oh, a complication a friend mentions. The 2 full years I missed were spent working in the USA for an American organisation. Now that might mean I can pay the much cheaper class 2. But the USA is a reciprocal tax country, and I would have been expected to pay their NI equivalent, except my visa was a J1, so I paid no tax at all. And is the 6 year window still relaxed for overseas class 2. I suspect another call to the helpline is needed.

[mc2fool]

And is the 6 year window still relaxed for overseas class 2.

https://www.gov.uk/voluntary-national-i ... ions/rates

[JohnB]

That and the other pages that talk about the extended window don't mention abroad, and vice versa. We shall see what the helpline says, though ringing HMRC on 31 Jan not ideal!

[mearnsfool]

I'm confused with the pre April 2016 logic here.

We know that the Johnb only had 28 years of pension credits at April 2016.

Therefore at 6th of April 2016 he started that year having 28/30 of £119.30 which equates to £111.35 plus 17.65 additional state pension total at that date £129.00 per week.

I have it my head that you cannot add to the pre April 2016 pension if you have already got £119.30 in the pot.

In this case there is £129.00 in the pot at that time.

Both Johnb and mc2fool are of the opinion that having over £119.30 in the pot at April 2016 does not preclude adding to the pre April 2016 pension if the person does not have 30 years pension credits at that time. They are both of the opinion that you can add two years credits to the pre April 2016 pension and also add to the monetary value of that section of the pension of around £8.40 at today’s rate or nearer £8 at April 2016.

I cannot find a government produced document that advises that you can add a financial amount to the persons pre April 2016 state pension if the value of the pot at that time is above the basic old style at that time by buying pre 6 April 2016 voluntary pension contributions or for that matter any government produced document that goes down to enough detail to advise that you cannot do this.

Can anyone point to an online government document that clearly states what the actual rules are in enough detail to get a handle on that specific subject.

[JohnB]

The helpline lady was quite clear that I'd get benefit for 2 years pre 2016, and up to 4 afterwards (but not together, as that would go over £165. No mention of exceeding the £119 figure being a problem. After all I was already with the ASP.

I'm trying to buy 2 pre-2016 years at class 2, as I was abroad at the time, using the NI38 leaflet, but that's a separate issue.

[monabri]

I retired in 2013 at age of 51 - having worked for all my working life post Uni for a company that provided a final salary pension scheme.

In 2016, post the new rules, I signed up to the Government Gateway account to review my NI contributions and state pension forecast.

The state pension under the old scheme was higher than under the new scheme ( I was contracted out ). The default is that the baseline is the higher of the 2 calculations. However, unless I decided to go back to work, for about 8 years ,my state pension would be approx £33 per week lower than the new pension maximum.

Of course, as I left work in 2013, I do not have NI contributions for 2014, 2015. I decided to buy class 3 NI contributions for years 2016 onwards. I was told that buying class 3 NI for the years 14 and 15 would not increase my pension and I could only increase it " going forward" from April 16...that it, by making voluntary class 3 payments for 2016/17 onwards.

So I have bought 2016/17 and 2017/18 by sending a cheque for the £740 and £754 (sorry, I'd have to check my records for the exact figures). Sure enough, the Government Gateway indicates that the gap between the forecast and max weekly state pension has decreased...my forecast state pension has increased

[monabri]

JohnB
I reckon that you should NOT buy pre 2016 years as they will be wasted money. Under the old scheme you had £129 pw, under the new scheme a lot less.

Just checked - on 15 June 18 I sent my 2018/19 Class 3 contribution £761.80.

25 July 2018 I received confirmation of receipt of cheque from HMRC. The words were

"This has been allocated as Voluntary Class 3 contributions to the 2018/2019 tax year"

So, that answers that part of your question for definite.

[mc2fool]

I reckon that you should NOT buy pre 2016 years as they will be wasted money.

Not so. Anyone who has less than 30 pre-2016 qualifying years, as JohnB has, will always benefit from filling pre-2016 gaps up to 30 years. Doing so will increase both the old system and new system figures for the 2016 "starting amount" and so, no matter which is higher, will consequently increase the starting amount, so it's never wasted.

Now, the benefit for each extra pre-2016 year, up to 30, may be anything from £4.20 to £4.70, depending on whether your starting amount is under the old or new system (or in between if it flips from old to new as a result), whereas a post-2016 year will always add £4.70, so it sounds like post-2016 would be better, or at least as good.

However, pre-2016 years are cheaper than post-2016, so it's worth working out which will give you the bigger bang for your buck, so to speak, as indeed JohnB has done in his OP.

Anyone with 30-34 pre-2016 years will only benefit from extra pre-2016 years if their starting amount is or will flip to the new system. Anyone with 35 or more pre-2016 years won't benefit from extra pre-2016 years no matter what system they are under.

Just checked - on 15 June 18 I sent my 2018/19 Class 3 contribution £761.80.

Why give it to them early? You could have waited until March 2021, it'd be the same cost and you could put it into a savings account until then and got a bit of interest...

[mearnsfool]

Yes, I agree if you have less than 30 pre 2016 contributions, further checking suggests you get two further years basic pension to your pre 2016 pension from contributing to those two pre 2016 years.

Buying two pre 2016 and 4 post 2016 years is cheaper than 6 post 2016 years and they both slightly overfund the maximum value of 164.35 per week based state pension based as of the 2018 2019 weekly payment. unless you have already had a larger state pension value at April 2016.