The system says I have 11 years left to contribute, but is it worth doing any more than 1 year?

[DrFfybes]

Moderator Message:
This thread has been split off from here in order to keep that thread unconflated. - Chris

I must admit I'm confused.

I'm 57, and have 34 full years NI. I gather 35 years is required for Full SP, but for some years I was on university and Local Govt DB schemes which I thought were contracted out, although they still show as full years in my record. ISTR Mc2Fool or Geoff100 saying it wasn't as simple as people think as to what you gain per year of contributions.

The system says I have 11 years left to contribute, but is it worth doing any more than 1 year?

That's assuming I live that long, I might develop health problems in the next decade. They might change the rules, SP might become means tested above a basic level, or it might put me into Higher rate tax so the payback time becomes longer.

As for whether Equities are better than NI, well that's down to your attitude to risk and the whims of future Governments.

Paul

[swill453]

The system says I have 11 years left to contribute, but is it worth doing any more than 1 year?

It depends, I think. Usually your pension forecast says "Your forecast is [X] a week" then later "[Y] is the most you can get".

What are your numbers?

Scott.

[monabri]

I must admit I'm confused.

I'm 57, and have 34 full years NI. I gather 35 years is required for Full SP, but for some years I was on university and Local Govt DB schemes which I thought were contracted out, although they still show as full years in my record. ISTR Mc2Fool or Geoff100 saying it wasn't as simple as people think as to what you gain per year of contributions.

The system says I have 11 years left to contribute, but is it worth doing any more than 1 year?

That's assuming I live that long, I might develop health problems in the next decade. They might change the rules, SP might become means tested above a basic level, or it might put me into Higher rate tax so the payback time becomes longer.

As for whether Equities are better than NI, well that's down to your attitude to risk and the whims of future Governments.

Paul

With your age and background (contracted out) you are very likely to be on the "New" state pension scheme as opposed to the "Old". In April 2016, your state pension was evaluated and it would likely have been determined that you would be better off on the new scheme.

You need to get a state pension forecast. I'll guess that it will say your max pension is £203.85 pw but your current entitlement is about £198.02 pw (*).
One more year of NI and you are maxed out! The fact you can contribute for 10 further years does not top up your state pension any further.



(*) Each qualifying year gives 1/35th of the full amount, so if you have made or been credited with less than 35 years of qualifying contributions, you’ll receive a lower amount.

[mc2fool]

I must admit I'm confused.

I'm not surprised. This (recently revived) thread is about a totally different kind of "top up" to the kind you are thinking of.

I'm 57, and have 34 full years NI. I gather 35 years is required for Full SP, but for some years I was on university and Local Govt DB schemes which I thought were contracted out, although they still show as full years in my record. ISTR Mc2Fool or Geoff100 saying it wasn't as simple as people think as to what you gain per year of contributions.

The system says I have 11 years left to contribute, but is it worth doing any more than 1 year?

It may not even be worth contributing one ... it isn't as simple as people think you know.

As Scott says, what are your numbers?

[ursaminortaur]

I must admit I'm confused.

I'm 57, and have 34 full years NI. I gather 35 years is required for Full SP, but for some years I was on university and Local Govt DB schemes which I thought were contracted out, although they still show as full years in my record. ISTR Mc2Fool or Geoff100 saying it wasn't as simple as people think as to what you gain per year of contributions.

The system says I have 11 years left to contribute, but is it worth doing any more than 1 year?

That's assuming I live that long, I might develop health problems in the next decade. They might change the rules, SP might become means tested above a basic level, or it might put me into Higher rate tax so the payback time becomes longer.

As for whether Equities are better than NI, well that's down to your attitude to risk and the whims of future Governments.

Paul

The local government and USS schemes were contracted out up until the new state pension was introduced in 2016. This means that you paid lower National Insurance Contributions but they will still show up on your national insurance record as full years since you still paid the required number of payments.

The 35 years for a full new state only applies if you have 35 full years at the standard rate for NICs. You will not get a full new state pension with 35 full years if you were contracted out for any of those years.

Myself I was contracted out for a number of years (firstly with a personal pension and then later because I was a member of the Local government scheme) and had to make extra voluntary national insurance contributions to make up for that so that I will get a full new state pension - I have now made enough voluntary contributions but that means I have actually made 44 years of contributions.

The system should tell you that you need to contribute for X more years to get a full pension and that you have Y more years (which in your case appears to be 11) in which to make such contributions. If you already have enough contributions to get a full new state pension then it will tell you that you cannot improve your pension.

[mc2fool]

As Scott says, what are your numbers?

P.S. The one you want is Estimate based on your National Insurance record up to 5 April 2023. If it says up to an earlier year let us know that too.

[mc2fool]

The 35 years for a full new state only applies if you have 35 full years at the standard rate for NICs. You will not get a full new state pension with 35 full years if you were contracted out for any of those years.

No, it is most definitely not as simple as that!

You may have additional state pension from non-contracted out years that more than offsets the COPE deduction from being contracted out for other years. It's entirely possible to get more than the full new state pension with less than 35 years even if you have been contracted out for some years.

The only simple statement that can accurately be made is that the 35 years for a full new state only applies to people who gain all 35 years from 2016 onwards. For anyone that has any pre-2016 years the situation is individual.

[ursaminortaur]

The 35 years for a full new state only applies if you have 35 full years at the standard rate for NICs. You will not get a full new state pension with 35 full years if you were contracted out for any of those years.

No, it is most definitely not as simple as that!

You may have additional state pension from non-contracted out years that more than offsets the COPE deduction from being contracted out for other years. It's entirely possible to get more than the full new state pension with less than 35 years even if you have been contracted out for some years.

The only simple statement that can accurately be made is that the 35 years for a full new state only applies to people who gain all 35 years from 2016 onwards, i.e. from 2051 onwards. For anyone that has any pre-2016 years the situation is individual.

Yes sorry you are correct that I was simplifying things as I didn't want to get into the weeds of SERPs - since he is considering contributing at least one more year his 2016 starting amount cannot have exceeded the new state pension because of SERPs.

[DrFfybes]

As Scott says, what are your numbers?

P.S. The one you want is Estimate based on your National Insurance record up to 5 April 2023. If it says up to an earlier year let us know that too.

Ahh, right.

I was going to ask that as I hadn't seen it anywhere. Last paid up year was 2019 when I stopped work part way through and paid the extra few hundred quid to make it up to the full year.

I should probably do the same for MrsF, as shes been Local Govt since 1981.

Thanks all.

[mc2fool]

P.S. The one you want is Estimate based on your National Insurance record up to 5 April 2023. If it says up to an earlier year let us know that too.

Ahh, right.

I was going to ask that as I hadn't seen it anywhere. Last paid up year was 2019 when I stopped work part way through and paid the extra few hundred quid to make it up to the full year.

I should probably do the same for MrsF, as shes been Local Govt since 1981.

Thanks all.

Are you not signed up for an online state pension forecast? If not start here: https://www.gov.uk/check-state-pension

Do it for MrsF too, and don't do anything else for either of you until you are both signed up and have got the numbers.

[Lootman]

It's entirely possible to get more than the full new state pension with less than 35 years

In fact it is entirely possible to get more than the "full" new state pension even if you have less than 30 years, which was the number needed under the pre-2016 rules.

I am living proof of that since I have 27 years of contributions (some purchased after my early retirement) and I get more than the new "maximum" pension.

In the OP's position I cannot imagine working extra years where those extra NICs buy me nothing in terms of an increased pension. That would scream "time to retire" to me.

[mc2fool]

In the OP's position I cannot imagine working extra years where those extra NICs buy me nothing in terms of an increased pension. That would scream "time to retire" to me.

He hasn't said anything about working for any extra years, and it is so far (pending numbers) unclear whether buying extra NICs would be worthwhile or not for him. As for time to retire, there are, of course, plenty of reasons why someone might want to continue working even if they've maxed out on useful NICs. However ...

Last paid up year was 2019 when I stopped work ...

[DrFfybes]

In the OP's position I cannot imagine working extra years where those extra NICs buy me nothing in terms of an increased pension. That would scream "time to retire" to me.

He hasn't said anything about working for any extra years, and it is so far (pending numbers) unclear whether buying extra NICs would be worthwhile or not for him. As for time to retire, there are, of course, plenty of reasons why someone might want to continue working even if they've maxed out on useful NICs. However ...

Last paid up year was 2019 when I stopped work ...

Yeah - initially I delayed adding years as I thought I might go back to work after Covid.

Then MrsF continued part time, mum lasted less than 3 months in a care home, and the unexpected inheritance meant there is very little chance I'll go back to work.

I've just gone into the Govt Gateway - many thanks for the link to the Pension forecast as I cannot find it by searching, certainly no link I could see via the NI pages, which would seem logical, or in fact anywhere from my signin.

It says in big green friendly letters that my Forecast is £203.85/week.

Then, underneath in the small print...

You need to continue to contribute National Insurance to reach your forecast

Estimate based on your National Insurance record up to 5 April 2022
£198 a week

Forecast if you contribute another 2 years before 5 April 2033
£203.85 a week

So, a fairly simple calculation for me now. Ignoring inflation I need to stump up £1595 to gain £250pa. That's a good 15% plus return at today's rates. I suspect NI top ups will increase a lot slower than Pension does (the rates barely changed from 2021 to 2022, so waiting to top up years will probably save money in the long term.

Also £1600 sounds a lot, but a fiver a week (before tax) doesn't, but in the grand scheme of things neither are large amounts of money.

MrsF has similar figures and also needs to add 2 more years, despite already having 44 Full years in, but she was contracted out for a lot longer than I was.

thanks for the pointers.

Paul

[mc2fool]

It says in big green friendly letters that my Forecast is £203.85/week.

Then, underneath in the small print...

You need to continue to contribute National Insurance to reach your forecast

Estimate based on your National Insurance record up to 5 April 2022
£198 a week

Forecast if you contribute another 2 years before 5 April 2033
£203.85 a week

So, a fairly simple calculation for me now. Ignoring inflation I need to stump up £1595 to gain £250pa. That's a good 15% plus return at today's rates. I suspect NI top ups will increase a lot slower than Pension does (the rates barely changed from 2021 to 2022, so waiting to top up years will probably save money in the long term.

Also £1600 sounds a lot, but a fiver a week (before tax) doesn't, but in the grand scheme of things neither are large amounts of money.

thanks for the pointers.

Ok, £203.85 is the full new state pension amount and each additional year you add will get you an extra £203.85 / 35 = ~ £5.82pw.

So, as you're currently up for £198pw (exactly?) adding one additional year will get you to £203.82pw -- 3p short of the full amount. Of course, you could stump up for another year to get the extra 3p per week but ... well, I'll leave the rate of return for that as an exercise for the reader.

On increases, the cost of NICs goes up each tax year by CPI (by the previous September's figure). The rate of increase of the pension is, of course, by the triple lock, which currently also means by CPI, although it could flip to either national earnings or 2.5% in coming years.

Re cost I have some (slightly) bad and some (very) good news for you. I take it your figure of £1595 is based on paying 2020-21 Class 3 NICs @ £15.30 and 2021-22 @ £15.40. Well (not that you'd want to pay both now anyway) it's too late now to pay the 2020-21 NICs at the original rate, the deadline for that was 5 April this year.

However, if instead of paying voluntary Class 3 NICs you declare yourself self-employed, at some "toy" job, you can pay voluntary Class 2 NICs at just £3.45pw (this tax year), so only needing to stump up £179.40 to get an extra £5.82 * 52 = £302.64pa when you draw your pension. Rate of return for that is also left as an exercise for the reader.

By "toy" job I mean, as I've said elsewhere, you could declare yourself self-employed doing, say, mowing your neighbours' lawns for a tenner a go, or charging your kids for babysitting the grandkids, or, a favourite it seems, ebay trading. One Lemon even registered themselves as an investor! I did it for a couple of years declaring the couple of hundred quid of Google AdSense advertising income I get from a couple of personal websites. Whatever you choose, having declared as self employed, even if your income from your "job" is only a fiver, you can then make a voluntary class 2 NIC for a mere £179.40 to get your extra year.

And the first £1000 of trading income from your "toy job" is tax free!

If you search the site for class 2 NICs you'll find others that have done the same.

[DrFfybes]

Ok, £203.85 is the full new state pension amount and each additional year you add will get you an extra £203.85 / 35 = ~ £5.82pw.

So, as you're currently up for £198pw (exactly?) adding one additional year will get you to £203.82pw -- 3p short of the full amount. Of course, you could stump up for another year to get the extra 3p per week but ... well, I'll leave the rate of return for that as an exercise for the reader.

Oooh - sneaky. It doesn't make that explicit on the site MrsF's will increment by 1 year anyway as she is still at work so be interesting to see how short she is.

On increases, the cost of NICs goes up each tax year by CPI (by the previous September's figure). The rate of increase of the pension is, of course, by the triple lock, which currently also means by CPI, although it could flip to either national earnings or 2.5% in coming years.

OK. Best done soon then

However, if instead of paying voluntary Class 3 NICs you declare yourself self-employed, at some "toy" job, you can pay voluntary Class 2 NICs at just £3.45pw (this tax year)

Yes - I'd seen those threads and thought about it. I could probably do it for this year, just need to find some way of generating an income. I sold a load of mum's stuff on Ebay but I've already comlpeted the tax return for that year. 'Investor' sounds promising as apart from £400/month from a Local Gov pension my income comes from investments. I wonder if the £1k of profit can be added to my Personal Allowance

Thanks

Paul

[mc2fool]

However, if instead of paying voluntary Class 3 NICs you declare yourself self-employed, at some "toy" job, you can pay voluntary Class 2 NICs at just £3.45pw (this tax year)

Yes - I'd seen those threads and thought about it. I could probably do it for this year, just need to find some way of generating an income. I sold a load of mum's stuff on Ebay but I've already comlpeted the tax return for that year. 'Investor' sounds promising as apart from £400/month from a Local Gov pension my income comes from investments. I wonder if the £1k of profit can be added to my Personal Allowance

The tax free allowance is on £1K of self employed trading income, not profit, and is separate and additional to the personal allowance.

Note that you have to be signed up for self assessment, and should you declare yourself to be self employed retrospectively for tax year(s) that you've already filed for, HMRC will turn round and ask you to refile for them. Also note that whereas class 3 NICs are frozen in price for 2 years for class 2 NICs it's just one, the last tax year.

So, if you have yet to file for last year you can declare yourself self employed for then (assuming you can think of some "trade" you did then) and pay the last year's rate of £3.15pa * 52 = £163.80 for your extra year. Otherwise it's best to just do it this year or some upcoming one.

I'm not so convinced that "investor" is such a good idea as I'd worry about it catching you out at some point, e.g. if your investing income surpasses not only the £1K allowance but reaches the level where you have to start paying (involuntary) NICs. As you only need it for one year best to keep it simple and temporary.

[DrFfybes]

I'm not so convinced that "investor" is such a good idea as I'd worry about it catching you out at some point, e.g. if your investing income surpasses not only the £1K allowance but reaches the level where you have to start paying (involuntary) NICs. As you only need it for one year best to keep it simple and temporary.

Yes - Unsheltered divi and interest nearly breached my Personal Allowance anyway last year, and that was without the Pension Income.

I do a lot of work, but it is all voluntary, quite a lot for the older folk around the Village. I suspect "Gigolo" isn't appropriate, but given the time I spend I'm probably a good chunk of the way towards claiming Carers Allowance. Shame I didn't claim it during Covid when I was looking after mum.

I've got a builder mate, I'm sure he can sort me something as a part time subby.

[pochisoldi]

With respect to their pension forecast, the OP appears to be in a very similar position to myself.
My forecast says I need two years for a full pension, which is true, but in my case there is no way on gods earth that I will voluntarily pay that "last year" to get 0.115 of a week's pension (currently about 67p, or £53/year).
I have 12 years in which to earn it.

In my case, there's some additional info:
- I do not have the option to buy pre 2016 years, so my pension starting figure remains unchanged (Other viewers: If you can buy pre-2016 years, please stop here.
- I was contracted out for a period, so my 2016 starting figure was reduced
- I do have the opportunity to top up some post 2016 years, but read below

a) The forecast is for £203.85
b) Estimate upto 5th April 2023 (aka "Earned and in the bag") is £197.36
c) The difference is £6.49 a week. (203.85-197.36)
As previously pointed out the full pension divided by 35 tells us what an extra year will earn us So £203.85/35 =£5.82
d) If I divide the difference by what an extra year earns us, this gives 6.49/5.82 = 1.115
Note that the figure calculated in step d is a ratio - each year of NI contributions will reduce it by 1, but that odd fraction will never change (as long as we have our current system).

I'm employed at the moment, and have already paid NI on more earnings than the LEL for the whole year, so come 5th April 2024, I will have another year in the bag, and when I repeat steps a -d with the new figures, it will show that the my difference is 0.115.

I have two (post 2016) years where I could pay Class 3 for one of them to make up that 0.115, but with my current situation, I see myself getting a full pension through being employed and paying Class 1 (and getting the full state pension "for free"). If that doesn't happen, and if I get to March 2034 with with a pension forecast showing me short by that 0.115*one thirty fifth, then I'll review my options, but at the moment if that does happen I can't see myself buying a full year of any type of voluntary contribution based on current rules.

PochiSoldi

[pochisoldi]

I'm not so convinced that "investor" is such a good idea as I'd worry about it catching you out at some point, e.g. if your investing income surpasses not only the £1K allowance but reaches the level where you have to start paying (involuntary) NICs. As you only need it for one year best to keep it simple and temporary.

Yes - Unsheltered divi and interest nearly breached my Personal Allowance anyway last year, and that was without the Pension Income.

I do a lot of work, but it is all voluntary, quite a lot for the older folk around the Village. I suspect "Gigolo" isn't appropriate, but given the time I spend I'm probably a good chunk of the way towards claiming Carers Allowance. Shame I didn't claim it during Covid when I was looking after mum.

I've got a builder mate, I'm sure he can sort me something as a part time subby.

Why bother:

Some people do not pay Class 2 contributions through Self Assessment, but may want to pay voluntary contributions. These are:
..
people who run businesses involving land or property
..
people who make investments for themselves or others - but not as a business and without getting a fee or commission

As seen at https://www.gov.uk/voluntary-national-insurance-contributions (scroll to the bottom).

As I see it, anyone who has cash savings, or one or more investment accounts (non-tax sheltered, ISA or pension) where you can choose where your money is invested falls into the latter category, even if most of their income comes from a defined benefit pension or an annuity bought from a defined contribution pension.

PochiSoldi

[mc2fool]

With respect to their pension forecast, the OP appears to be in a very similar position to myself.
My forecast says I need two years for a full pension, which is true, but in my case there is no way on gods earth that I will voluntarily pay that "last year" to get 0.115 of a week's pension (currently about 67p, or £53/year).
I have 12 years in which to earn it.

I'm not sure how useful it is to express it as a ratio, but my (Windows) calculator makes £0.67 * 52 = £34.84 a year.

Were you to buy that last bit with a voluntary class 2 NIC, currently at £179.40, that'd give a payback time of 179.40/34.84 = 5.15 years, and I don't think that's so clearly a "no way"; for most folks it'd still be a good deal. Of course, if you were to pay the current voluntary class 3 rate for it, at £907.40, that'd be another story.

But in any case, as you have 12 years until it will matter, with a fair chance of you getting the extra from involuntary contributions from employment in the interim, then, yes, clearly you shouldn't do anything about it until you get much closer to that time .. and maybe not even then.

Some people do not pay Class 2 contributions through Self Assessment, but may want to pay voluntary contributions. These are:
..
people who run businesses involving land or property
..
people who make investments for themselves or others - but not as a business and without getting a fee or commission

As seen at https://www.gov.uk/voluntary-national-insurance-contributions (scroll to the bottom).

As I see it, anyone who has cash savings, or one or more investment accounts (non-tax sheltered, ISA or pension) where you can choose where your money is invested falls into the latter category, even if most of their income comes from a defined benefit pension or an annuity bought from a defined contribution pension.

You are free to try that on. Do let us know how it works out...