State pension - is it worth making payment for a shortfall of a year?

[david]

Started working in 2007/2008 through this current 2021/2022 fiscal
With a gap and shorfall showing in my HMRC records in 2012/2013

Considering if worth making the additional payment to cover for that fiscal year contributions or not - my doubt is coming from the fact that HMRC is showing I have 16 years of full contributions so my question is: How are these years of full contributions counted?

The only way I could have right now 16 years of full contributions is if my contributions during 2011/2012 and 2013/2014 would cover those 4 years entirely and hence making the contributions during 2012/2013 useless if that makes sense - so based on that I'm thinking no need to make a payment to cover that 'inexistent' gap in practical terms but wondering if I might be missing something on this.

[mc2fool]

I'm a bit puzzled as to which HMRC records you are looking at that show a gap for 2012/2013 but don't, it seems, tell you which years of full contributions you have.

I suggest you sign up for the online state pension forecast, which also has a complete list of years you've contributed (or got credits for), and ones you haven't. https://www.gov.uk/check-state-pension and click Start now.

Part, of maybe all, of the answer to your mystery might lie in the "starting credits" systems under which you were awarded a free year on your National Insurance record for the year in which you turned 16 and the two following years. (That was abolished for those reaching 16 from 6 April 2010 onwards.)

[gryffron]

Paying voluntary NI to make up your Pension is just about the best guaranteed investment you can get. But ONLY IF YOU NEED IT. If you have plenty of working years left, then there's no advantage at all in paying EXTRA years.

So how old are you? You need 19 more years. If you are <48 I would just forget about it.

Gryff

[mc2fool]

Paying voluntary NI to make up your Pension is just about the best guaranteed investment you can get. But ONLY IF YOU NEED IT. If you have plenty of working years left, then there's no advantage at all in paying EXTRA years.

So how old are you? You need 19 more years. If you are <48 I would just forget about it.

Not necessarily 19, the oft quoted "35 years needed for a full pension" is only true for people that started getting NI years from 2016 onwards, i.e. totally under the new system. For folks that got any NI years pre-2016 it may be more or less than 35 years. Fully agree with your other points though.

[SPURLEY]

Hello you do not state how old you are , If you left school at 16 and then went to college for 2 years you will have been credited with 2 years National Insurance without actually earning it in employment . So if you add these 2 years to your total of 15 years in the tax system you do have one missing . But if this is the case then I would think that as long as you remain in employment you would not need to pay the shortfall as you would eventually surpass the required number of qualifying years anyway.

[Midsmartin]

You can only makes voluntary payments up to six years in arrears, so I'm afraid you've missed the boat.

You can talk to them on the phone, and they are quite helpful when you eventually get through. I think you need to talk to them DW to discuss if it's possible to make extra payments and what effect they may have.

[DrFfybes]

In terms of Financial returns, the short answer under current rules is "Yes".

The long answer is "Hell yes".

Note that the rules are not as simple as you'd expect, and part years don't necessarily count if the earnings aren't high enough. I worked 3 or 4 months into the new tax year when I retired and because of salary sacrifice was under the 52 X LEL contributions limit, which ended up costing me £600+ to top the year up.

Paul

[mc2fool]

Hello you do not state how old you are , If you left school at 16 and then went to college for 2 years you will have been credited with 2 years National Insurance without actually earning it in employment . So if you add these 2 years to your total of 15 years in the tax system you do have one missing . But if this is the case then I would think that as long as you remain in employment you would not need to pay the shortfall as you would eventually surpass the required number of qualifying years anyway.

As I stated in my first post above, "starting credits" is 3 "free" years of NI credits for being in education, 16, 17 and 18.

You can only makes voluntary payments up to six years in arrears, so I'm afraid you've missed the boat.

Not so. Normally yes, but as part of the transition to the new state pension:

"You’re a man born after 5 April 1951 or a woman born after 5 April 1953

You have until 5 April 2023 to pay voluntary contributions to make up for gaps between April 2006 and April 2016 if you’re eligible."
https://www.gov.uk/voluntary-national-insurance-contributions/deadlines

[david]

Thanks all for the answers! I should have mentioned this - I'm 38 yo - and I took the data from HMRC Government Gateway, where it shows I have 16 years of full contributions between 2007/08 and 2021/22 with the mentioned gap between 2012/13, I spent back home in NZ.

HMRC allows me to bridge that gap and pay roughly 800 for that year to have it full, but I guess my question is whether it will make any difference as I cannot really work out how I currently can have 16 years of full contributions with that gap in my history - I suspect given I started working at 23yo, it's highly unlikely I got any "starting credits" so remains a mystery how the full contribution years are calculated here by HMRC.

I asked the question as, even though I have hopefully enough years ahead to reach the requirement of 35, it would be my intent to stop working as soon as I can confidently afford to do so, reason I was considering to pay for that extra year as investment.

[Lootman]

You can only makes voluntary payments up to six years in arrears, so I'm afraid you've missed the boat.

Not so. Normally yes, but as part of the transition to the new state pension:

"You’re a man born after 5 April 1951 or a woman born after 5 April 1953

You have until 5 April 2023 to pay voluntary contributions to make up for gaps between April 2006 and April 2016 if you’re eligible."
https://www.gov.uk/voluntary-national-insurance-contributions/deadlines

Yes, I am living proof of this. I was able to purchase 9 years of NICs in arrears under this provision.

That took me from 18 qualifying years to 27, out of the 30 that I needed.

At the time I computed that the payback period for buying Class 3 contributions was about 3 years. Bargain.

[mc2fool]

Thanks all for the answers! I should have mentioned this - I'm 38 yo - and I took the data from HMRC Government Gateway, where it shows I have 16 years of full contributions between 2007/08 and 2021/22 with the mentioned gap between 2012/13, I spent back home in NZ.

HMRC allows me to bridge that gap and pay roughly 800 for that year to have it full, but I guess my question is whether it will make any difference as I cannot really work out how I currently can have 16 years of full contributions with that gap in my history - I suspect given I started working at 23yo, it's highly unlikely I got any "starting credits" so remains a mystery how the full contribution years are calculated here by HMRC.

Government Gateway is just a login method, the puzzle is what are you seeing that doesn't let you figure out how your total is arrived at?

Are you not seeing a list of years and whether they are filled or not, as per https://youtu.be/kw1FWIPtDXM?t=63?

If you are then there should be no mystery, you can simply look through the list and tot up the "full" years to see how the 16 is arrived at.

2007/08 to 2021/22 with a gap for 2012/13 is 13 years, so the 3 years of starting credits to make 16 stacks up -- except that it's , really already showing you have a full year for 2021/22 ?!? It may, indeed, be that you've already contributed enough to earn a full year, but it's not yet the end of the tax year and they never used to show anything at all until several weeks into the next tax year. So, really, it's telling you 2021/22 is a full qualifying year?

I asked the question as, even though I have hopefully enough years ahead to reach the requirement of 35, it would be my intent to stop working as soon as I can confidently afford to do so, reason I was considering to pay for that extra year as investment.

As I stated above, in the cases of people like you who had some pre-2016 qualifying years, you may need more or less than 35 years. If you like we can work out exactly what you'll need. To do so you'll need to supply the info listed at viewtopic.php?p=398678#p398678

On paying the extra year and stopping work as soon as you can: firstly, stopping work doesn't mean stopping contributing and getting extra years. You're 38 and you've got 16 years already and you've got 30 years to go before you reach state pension age (it'll be 68 by the time you get there), so plenty of time to fill the extra 20-ish years you'll need.

But if you're really keen to get them filled ASAP, you can fill 2006/07 as well as 2012/13, although filling those years may not be as beneficial as filling ones going forward. If you provide the above linked to info we can work it out.

[gryffron]

The hardest question for you, and one no-one here can possibly answer, is how much HMG are going to charge for Class 3 contributions going forwards for the next 30 years. ATM as several commentators on this thread have already pointed out, they're an absolute bargain, a real gem of an investment. It is possible that in the future Class 3 contributions might be increased to a more "realistic" cost. But who knows?

If the cost is going to increase dramatically, you'd be better off filling in your early years now. If not, you'd be better off investing that cash elsewhere for now and filling in your later years, even if post (early) retirement.

(FWIW my best guess is that a significant increase in cost is unlikely, as the 2 biggest groups generally affected by these contributions are divorced women (Labour priority) and early retirees (Conservative priority))

Gryff